Global pork trade is expected to weaken, after a strong first half of the year, as markets are dragged down by sluggish economic growth, weak consumption and recurrent disease outbreaks.
Meanwhile, despite softening feed prices, production costs are expected to remain above pre-Covid levels, according to the latest Rabobank quarterly pork report.
Sluggish economic growth has been impacting consumers around the globe, and, as a result, they are trading down, buying smaller portions, and switching channels. However, pork, which is cheaper than beef and premium seafood and more expensive than poultry, still holds a relatively stable position on consumers’ plates.
Performance varies from region to region, however, subject to availability and prices in the local market, according to Chenjun Pan, senior analyst – Animal Protein at Rabobank.
“In Europe, pork consumption remains under pressure due to ongoing high prices. In the US, demand was slightly below expectations to start the summer, as uncooperative weather and poor air quality challenged the start of the grilling season. And in China, pork consumption remains weak, due to the underperforming economy and heat waves across the country.”
Pork trade was relatively strong in the first half of 2023, driven by an increase in imports in China, although trade to the US and the Philippines saw material declines. Japan, another major importer, saw flat trade, with a slight shift in sourcing from Europe to the US.
UK imports showed a ‘significant decline’, with Rabobank suggesting this was due to inflation pressuring demand, although Kantar retail data suggest demand has only fallen back slightly, despite big retail price increases.
Ms Pan added: “For the second half of 2023, we expect global trade to be weaker than in same period last year, as inventories of frozen pork are high in China due to weak consumption, pressuring imports. Also, tighter supply in the EU restricts shipments out of the region.”
The EU pork supply was down by 10% in the first four months of 2023, with some countries seeing falls at double-digit rates, including Denmark (21%) and the Netherlands (12%), alongside a 17% decline in the UK. Pork processors have begun rationalising as they anticipate lower supplies in the years ahead. This tighter EU supply is supporting high prices and, in turn, pressuring consumption.
China has the opposite situation, as pork supply continues to exceed demand, pressuring prices and causing multiple-month losses for producers. Liquidation of the sow herd in China will continue in the second half of the year.
In the US, which also has a plentiful supply, producers have relatively healthy balance sheets after two years of outsized profits. Given projected losses, however, US herd liquidation should ramp up into 2024.
Supply is also challenged by volatile feed prices and relatively low stocks. Corn and soybean prices were volatile entering July due to weather issues, Black Sea grain corridor uncertainty, and the smaller-than-expected soy planted areas and larger-than-expected corn areas in the US.
“We expect feed prices to soften in Q3 but remain supported by relatively low stock-to-consumption ratios in many countries,” said Ms Pan. “While there is some room for prices to drop further in the coming months, they will stay above pre-Covid levels.”
“Rabobank expects a modest improvement in production costs in the second half of 2023, as productivity improvements likely offset feed cost volatilities.”
Herd health improvements continue to be a major challenge for producers worldwide as disease outbreaks influence production.
“African swine fever (ASF) continues to impact production in Asia and Europe,” Ms Pan added. “While outbreaks generally slowed in the second quarter of the year, they appear to be persistent in some regions, causing disruptions to local supply. In addition, porcine reproductive and respiratory syndrome (PRRS) remains a challenge in Spain, causing a material drop in production.”