Strong Chinese demand to support pork prices despite Brexit

Strong Chinese import demand and stalling supplies will continue to support global pork prices throughout the third quarter of 2016, despite the current “wildcards” of Brexit and feed costs, according to Rabobank.

While warning that feed costs and the Brexit effect on currency exchange rates could “negatively impact” the projected upswing in global pork prices, Rabobank’s animal protein analyst, Albert Vernooij, said the forecast was for a further rise in the Rabobank five-nation hog price index in Q3, supporting margins across the globe.

Commenting as part of the summary to Rabobank’s latest global pork quarterly, which is released today, Mr Vernooij (pictured above) said that volatile prices in China in June were “just a temporary blip in the positive mood” in the country.

“With supply forecast to bottom out and demand starting to pick up seasonally, prices are expected to peak somewhere during the coming months, supporting imports (into China) which will likely exceed 2 million tonnes in 2016,” he said.

The bank’s view on the EU, meanwhile, is that the bullish market for pork will “remain”.

“Chinese import demand and declining supply will continue to support prices (in the EU) and much needed margin recovery,” said Rabobank. “The main challenge for the EU pork industry remains to limit supply expansion, while FX currently supports the EU’s competitive export position but domestic consumption remains lack lustre.”

For the US, the bank said that it expected exports to drive further price recovery.

“Relative tight supplies, positive developing domestic consumption and optimism of increased exports will continue to support positive margins (in the US),” it said. “The expected export growth due to rising EU prices might be limited with the US dollar strengthening in the aftermath of the Brexit vote.”

Finally, on Brazil, the Rabobank view is that corn prices are key to the country’s future supply position.

“Easing corn prices in the second half of 2016 will relieve part of the cost pressure in the Brazilian pork industry,” it said. “Combined with increasing exports and higher pork prices, this will support margin recovery. However, this will not be sufficient to induce production expansion.”

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