The Dutch bank’s pork quarterly for Q3 2014 showed the Chinese hog-to-corn price ratio fell to 5.1:1 in June, below the breakeven point of 6:1 for 23 weeks, indicating a significant loss on the farming side - up to $50 per hog at the current market price.
“The key challenge for [Chinese] hog farmers to recover part of their losses is to limit herd expansion,” said the Rabobank team, as they predict ever increasing pig sector consolidation there.
Chinese pork prices, said the analysts, are expected to stay at the current low level in most of Q3 2014, but will likely show a strong rebound subsequently, due to an expected shortage in pork supply in Q4 up to early next year.
Global market prospects
The global pork market, said the researchers, is expected to move into record territory in Q3, especially in the major exporting countries hit by the porcine epidemic diarrhea (PED) virus, the US and Mexico.
William Sawyer, a US based Rabobank analyst, told feednavigator that feed demand in the US pork sector is set to be quite strong.
“Profit margins are currently at historic highs ($115 per head in July) and are expected to remain strong through 2015.
Producers are trying to put every pound possible on their hogs to take advantage of those high profit margins. This has helped weights to rise about 5% over the past year.
And, there is a reasonable expectation that PEDv will be an issue again this autumn and winter, which will require producers to keep weights up through 2015,” he said.
Mexican production decline
Meanwhile, the authors expect hog prices in Mexico, where the virus has also shrunk supplies, to jump 10% from their current levels.
“We maintain our expectation that pork meat production will decline 9.7% in 2014 [in Mexico] as a result of PEDv. Consequently, meat imports are forecast to reach an historical volume of 880,000 tons,” they added.
Russian ban limiting EU pork potential
Rabobank does not expect Q3 EU pork prices to reach the “levels seen in the last two years” if the Russian import ban on EU pork, imposed after African Swine Fever was discovered in Poland and Lithuania, is not lifted.
The team said the likely jump in EU pork shipments to Asia and the US in the coming months will not be able to compensate for the loss of exports to Russia, Ukraine and Belarus, as these three countries accounted for more than one million tons of 2013 exports and it is “unlikely that other countries can absorb this total volume.”
The authors say the Japanese pork industry is increasingly challenged by the impact of PEDv with declining production and slaughter numbers. Imports rose 4.3% from January to April.
The Q3 pork quarterly report can be read here.