The COVID-19 pandemic’s impact on the global pork supply chain won’t be over anytime soon. Rabobank analysts revised down pork production for 2020 in major producing countries in its most recent Pork Quarterly report.
Although global pork supply for 2020 was initially expected to decline by 5% compared to 2019, Rabobank now anticipates a decline of 8%. The biggest year over year declines are expected in China (-17%), the Philippines (-9%) and Vietnam (-8% to -11%), but other major producing countries show a similar tendency, analysts said in the report. Pork production will likely decline -1.5% in Brazil and -0.5% in the EU, compared to a year ago. However, despite disruptions, the U.S. is expected to increase 1.3%.
Rabobank Five-National Hog Price Index Drops
“Labor shortages, operational suspensions, soft demand and channel shifting will force industry players to increase automation, adopt digitalization, improve plant working conditions, streamline processing, and integrate along the supply chain to optimize operations and secure margins,” Rabobank analysts said in the report.
In addition to COVID-19, rising geopolitical tensions and unsettled negotiations are affecting global trade. Trading has encountered additional challenges due to labor shortages at ports, reduced ship movements, rising freight costs and temporary closures of some processing plants.
The Rabobank Five-National Hog Price Index has dropped in 2020 in response to these uncertainties.
China Imports Slow
In light of a new wave of COVID-19 outbreaks in Beijing in June, China has implemented strict inspections of global sourcing and bans on a number of exporters, the report said.
Meanwhile, domestic pork prices are on the rise driven by low hog supply following liquidation in May. Analysts expect prices to remain at these high levels as they expect imports to slow and outbreaks of African swine fever (ASF) to rise because of the heavy rain and flooding conditions.
“Recovering consumption will impose additional upward pressure on market prices,” Rabobank reports.
Lower Production Outlook in Europe
EU-28+UK pork production declined 1.3% in the first four months of 2020 and is expected to drop 0.5% in 2020. Exports have remained strong despite the pandemic. Still, Rabobank analysts said uncertainties are rising due to some temporary suspensions in trade with China. More than 60% of total exports from EU-27+UK go to China.
U.S. Hog Inventory Pressures Prices
In early July, U.S. live hog prices dropped to multi-year lows due to limited shackle space and ample inventories weighing on the market. A further decline in sow herd will be necessary, Rabobank reports. Additionally, labor shortages continue to limit carcass conversion and packer margins.
However, exports remain robust, especially to China. Exports for the year are expected to be up 18% year over year.
Brazil Exports Greater Volumes
Brazil’s pork exports in Q2 registered even greater volumes despite the risk of a second wave of COVID-19 impacting Chinese demand, analysts said in the report.
“This is in contrast to soft local demand, which is dragging down production,” Rabobank said in the report. “The pace of the price rise in corn futures in Q4 in recent weeks will squeeze margins, making production even more challenging in the coming months.”
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