Rabobank: Hog prices to recover this year

The bank expects global hog prices to remain under pressure in the first part of Q4, followed by a price recovery towards the end of 2012 and into 2013 – which will begin when the current supply boost from feed price-induced herd liquidation fades.

In a new report, Rabobank’s Food & Agribusiness Research and Advisory group looks at the issues of pork supply, demand and pricing in China, the U.S., the EU, Canada, Brazil, Japan, South Korea, Mexico and Russia, as well as industry-wide.

In particular, the report looks at the impact of drought in various markets, notably consolidation at the farm level due to high feed costs, as well as the variance in pricing in major pork markets.

David C. Nelson, global Animal Protein strategist at Rabobank and an author of the report, said, “Diverging price trends in key markets were the distinguishing feature of the global pork trade in Q3 2012. Clearly, production cycles are not synchronized globally – and this creates opportunities for those with flexible procurement and sales operations.”

The report explores these key points:

Global pork prices will remain pressured in Q4 2012.
Production cutbacks to support strong prices will continue into 2013.
There are contrasting price developments between pork producing regions globally.
High feed costs will trigger another consolidation round.
The Rabobank five-nation (Brazil, China, U.S., Canada, EU) finished hog price index was down in September after rising since May.
The impact of economic conditions on demand will be key for 2013 pricing.
Agricultural commodity price volatility, exchange rate movements, and fluctuating Chinese pork imports will drive the global pork market in coming years “The consequences of the worst drought in the U.S. in nearly a century were further exacerbated by droughts in South America and Russia,” commented Nelson. “The result will be historically low stocks-to-use ratios for feed crops and high costs for at least the coming 12 months. Further demand rationing for feed crops will be required for the biofuel production and animal protein industries, including pork. Continuing tight global beef supplies will also provide a pricing umbrella for pork.”