UTRECHT, THE NETHERLANDS – The coronavirus (COVID-19) pandemic, geopolitical tensions and various supply chain disruptions will likely lead to declines in global pork production, Rabobank said in its Pork Quarterly Q3 report. Analysts with the bank’s Food and Agriculture Research division anticipate an 8% decline in global pork production; Rabobank initially projected a 5% decline earlier this year.
“The biggest year-over-year declines are expected in China (-17%), the Philippines (-9%) and Vietnam (-8% to -11%),” according to the report, “but other major producing countries show a similar tendency. Pork production is also expected to decline in Brazil (-1.5%) and the EU (-0.5), compared to 2019.”
Pork production in the United States is expected to climb 1.3% despite disruptions, analyst said in the report.
Prices for live hogs have been on the rebound since June due to the low supply of hogs for slaughter, Rabobank said. Prices jumped nearly 50% in just over one month to CNY 38/kg in early July from NY 24/kg in May.
However, African swine fever continues to be a problem for China’s pork producers, therefore Rabobank expects prices to remain high for the remainder of 2020.
In the United States, live hog prices dropped 41% year-over-year in early July, as meatpackers continue to work through a backlog of animals that could take several months to process. Analysts said market prices for hogs are well below breakeven and could cause some producers to trim their sow herds or exit the business.
“Rabobank expects additional cuts to the breeding herd (currently 6.3 million sows) to better align supply and demand,” the report said. “Expected adjustments in breeding stock also reflect ongoing productivity improvements. Record pigs per litter in the latest report and continued improvements in pigs saved also support our outlook for a smaller sow base going forward.”
Temporary closures of processing plants and export suspensions weighed on pork production in the European Union and the United Kingdom, and Rabobank analysts expect more of the same during the summer.
Pork production eased 1.3% year-to-date in the first four months of 2020 in the European Union-27 and the United Kingdom. However, Rabobank analysts forecast some recovery in production during the second half of the year resulting in an annual year-over-year decline of roughly 0.5% for the European Union and United Kingdom.
Analysts noted that Spain, the Netherlands, Denmark and the United Kingdom recorded some growth between January and April. The outlier was Italy which has been hard-hit by COVID-19. Pork production in Italy declined 21% year-to-date. In Poland, production declines were attributed to ASF and COVID-19, Rabobank said in its report.
Exports from the European Union and United Kingdom increased 14% year-to-date during the first half of 2020, but COVID-19 has cast a shadow of uncertainty over future export activity.
“We expect pork exports to be under pressure in the coming months,” the report said. “As China takes precautionary measures against COVID-19, exports from Dutch, German, Irish, UK and Italian plants have been suspended.
“It is uncertain how quickly these plants will be able to resume exports and whether other plants will be suspended in the future. We believe, however, demand from China is generally strong and opportunities for export will return as soon as these issues are sorted out.”
Demand from China lifted Brazilian pork exports in the second quarter, Rabobank said. Total shipments in the first half of 2020 climbed 37% higher in volume and 53% in value year-over-year. Exports to China were 150% higher representing 49% of total pork exports, analysts said.
However, higher feed prices and the suspension of several processing plants from exporting pork to China have caused concern for the market.
“Two pork plants have been embargoed, and there is the possibility of additional suspensions,” Rabobank said in its report. “The general outlook for China to reduce imports during Q3 is also weighing on the market, given the growth in exports to China in 1H 2020.”
Canadian pork processors experienced some disruptions early in the second quarter of 2020, but lately producers have mostly caught up on the backlog of hogs, although some regional imbalances remain, Rabobank said. Meanwhile, Japan recorded a 0.5% increase in hog slaughter in the second quarter, compared to a year ago. But Rabobank analysts anticipate hog slaughter in the third quarter to decline by 1.8%, which is in line with seasonally lower demand.
Imports of pork by South Korea dropped 30% year-over-year during the first five months of 2020, Rabobank said in its report. Price improvements led to a recovery in pig slaughter which impacted shipments of pork from the United States and the United Kingdom.