Double shock in the global pork market
There is a double-shock to be absorbed in the global pork market, as the COVID-19 pandemic is creating new challenges for an industry already impacted by the African swine fever, said a team of analysts from Rabobank. Volatility in pork prices in 2020 is expected to remain present as trade and supply chain disruptions are going to be more frequent. At the same time, the coronavirus pandemic has changed consumer habits in almost every country impacted by the disease and that is going to be another challenge for major players in the field.
"The combined effect of near-term demand destruction and processing interruptions due to labor constraints has weakened producer returns and will slow production growth. Weaker GDP growth could further pressure pork demand, compounding an already challenging operating environment," commented Christine McCracken, Senior Animal Protein Analyst, Rabobank.
Pig prices in the Chinese market are expected to remain elevated as the ASF crisis is far from over and the recovery in the national pig inventory will go slowly this year. "Producer interest in rebuilding remains good, resulting in a sharp upward trend in piglet costs. Continued outbreaks of ASF remain a concern and limit growth for smaller operations. Pork demand has recovered, albeit more slowly than anticipated", said the analysis.
According to a USDA estimate, the 2020 ending hog inventory is expected to increase slightly from 2019 as the decline bottoms out. "With low pork production in 2020 resulting in high pork prices, many Chinese consumers will seek out beef as an alternative protein", according to the USDA report.
The one country that is expected to benefit most of the ASF crisis in Asia is Brazil. Despite Covid-19 disruption, pork exports remain strong, driven by demand from China. Weakness in the Brazilian currency and a shortfall in supply in Asia will support continued growth, helping to offset weaker domestic markets. Nevertheless, possible higher corn costs may limit production.
The EU, which holds the rank of main pork supplier in the Chinese market, is facing serious threats from the same factor, ASF virus, with two commercial barns in Poland close to the German border hit by the disease in the last couple on months. Still, exports to third-markets from major producers in the bloc such as Spain, Germany, Denmark are running high.
For the US pork industry, the main concerns are related to disruptions in the supply chain and critical labor shortages. Pig prices in the US have dropped 35% in April due to plant closures and bottlenecks in transportation and logistics. "This has created a backlog of hogs, which will quickly reach critical levels given record supplies. Pork values have dropped but have seen some support from exports," according to Rabobank analysis.
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