Herd health challenges and higher costs are expected to slow global pork production growth, limiting global pork availability and helping to boost expected hog prices, Rabobank says in its Global Pork Quarterly report.
Analysts say a 2.8% downward revision to expected 2022 U.S. production, following breeding herd reductions and widespread herd health challenges in late 2021/early 2022, strengthens their outlook for hog prices. Slower production growth in Europe and Asia for the remainder of the year, due to legacy ASF productivity challenges and COVID-19-related disruptions, also improves the market outlook.
Higher Costs Pressure Producer Returns
Producers’ costs continue to escalate in most regions, led by an increase in feed costs especially after a disappointing South American crop and the recent disruption in the Black Sea, says Christine McCracken, Rabobank senior analyst.
“Lower global grain inventories increase commodity volatility, heightening the importance of successful harvests over the balance of the year,” McCracken says. “Feed costs vary by region, providing some advantage to producers with adequate local supplies in North America and parts of South America.”
She says the recent spike in energy costs will put additional pressure on an already stressed global supply chain, just as it was emerging from an extended disruption. Higher labor expenses will also put extra pressure on returns.
Global Trade Volumes Lower
Recent geopolitical conflicts and a shift away from a reliance on trade will weigh on trade flows through the second half of 2022, McCracken says. An estimated 11% of worldwide pork production is destined for global markets. Most export-dependent countries are unable to absorb excess pork in local markets, putting pressure on domestic pork values. Prolonged disruption in global trade may force some regions to reevaluate their relative exposure to exports and export-led growth, she adds.
“The drop in anticipated export volume is expected to mirror the drop in supply, with higher pork prices helping drive trade values of nearly $45 billion again in 2022,” McCracken says. “We are revising our global import figures lower, but remain relatively bullish on the long term prospects for global trade.”
Hard-to-Predict Consumers
A big uncertainty, among many, is how consumers will respond to higher pork prices.
“Pork prices do not yet fully reflect the higher underlying cost of production, especially in Europe and some parts of Asia, as meat supply continues to exceed market needs,” McCracken says. “Producers were slow to curb production, with the impact of the efforts impacting availability beginning in 2H 2022.”
Packers already facing higher operating costs (energy, distribution, packaging, labor), may have some difficulty passing on higher hog costs given expected consumer weakness, McCracken explains.
“Packers will continue to optimize throughput and work to extract additional value from the carcass where possible,” she says.
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