Lower feed costs assist record pork price margins

By Lynda Searby

- Last updated on GMT

Lower feed costs assist record pork price margins

Related tags: Feed costs, International trade

Pork producers in the US, Brazil and Mexico are witnessing record margins, with low feed costs playing a role, according to Rabobank’s pork quarterly for Q4 2014.

“Due to the high prices of last year, pork producers globally with the exception of the EU and China are seeing record margins, also supported by lower feed costs,”​ analyst Albert Vernooij, the report’s author, told FeedNavigator. 

“Feed costs are under pressure due to the bumper crops across the globe and especially in the Americas. This has increased stocks and will result in sufficient availability of feed​,” he said. 

The Dutch bank reported that in the US, porcine epidemic diarrhea virus (PEDv) coupled with consumers trading down from higher priced beef had caused pork prices to surge. Supported by lower feed costs, this was driving one of the highest margin periods in the industry’s history. 

Vernooij said that the US was forecast to increase pork production by 2-3% next year, driving higher demand for feed. 

However, he warned that the possible return of PEDv this winter was the wildcard in these predictions, saying: “The real question is what will happen with PEDv. Will it return? Everyone agrees it will not be as severe as the last outbreak, but will it move beyond the USA, Mexico, South Korea and Japan?”​ 

The US is not the only region where margins are hitting historic highs. In Mexico, which experienced the greatest PEDv impact this summer with year-on-year slaughter numbers down 11.1%, margins will set a record high in 2014 due to declining feed costs and inflated hog prices. 

EU producers under pressure

In sharp contrast, the EU has seen its prices drop by 9% with no sign of recovery. Even taking into account the positive impact of declining feed costs on margins, it will be a disappointing year for the EU pork industry, says Rabobank. 

EU producers have suffered at the hands of the extension to the Russian trade ban to include competing exporters in the US and Canada, as well as declining consumption, and both consumption levels and exports will remain under pressure for the remainder of the year, says the report. 

Production is only expected to increase by 0.5% next year, and with pork prices relatively low, Vernooij said an uplift in feed demand was not expected.

Even if Russian markets open again next July, Vernooij pointed out that in 2015 there would be little impact on either pork or feed demand in the EU due to the high levels of stock. 

“Going into 2016 there could be more potential export opportunities although competition will be fierce,”​ he said. 

Canada has also borne some of the brunt of the Russian ban; hog prices fell dramatically in Q3, driven by rising competition for other markets as exports were directed away from Russia – a situation which Rabobank says will likely continue until the ban is lifted. 

Ban benefits Brazil

Brazil, on the other hand, has been one of the beneficiaries of the Russian import ban, with exports to Russia seeing an 18% volume uplift, accounting for 50% of Brazil’s pork export value. 

Vernooij said he expected Brazil to increase production next year, creating a corresponding rise in demand for feed inputs. 

China has yet to feel the benefits of falling feed costs as the drop had not reached its pork industry at the beginning of the quarter, according to Rabobank. But Vernooij said some price pressure was now apparent, meaning Chinese hog farmers would finally be expected to make some money.

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