The economic recovery from the COVID-19 pandemic remains challenged by various supply-side constraints, says Rabobank in the October North American Agribusiness Review.
“When COVID-19 started to spread around the world, the global economy grinded to a halt, and the restart of the economy since then has been plagued by supply chain disruptions,” Rabobank analysts say.
These constraints are not only slowing down economic activity, they are also pushing up prices which will have a negative impact on consumption and investment going forward.
Pork Production and Carcass Value
In the pork industry, September production on an adjusted basis was down 3.6% year over year, the report noted. Packers reported a 4.4% year over year drop in adjusted slaughter during the month. Analysts say that limited labor availability and some plant disruption due to operational issues helped contribute to the decline.
At the current pace and given projected holiday slaughter, Rabobank expects a slightly larger 2% year over year drop in 2021 pork production.
Meanwhile, pork carcass values have declined from the previous season but remain 17% ahead of year-ago levels, the report showed. Strong foodservice demand for bacon and low cold storage inventories of pork have driven up belly prices 28% year over year, despite seasonally weaker demand.
“Strong export demand and labor constraints for deboning are supportive to ham values, although growing inventories are likely to limit further increases,” Rabobank analysts say. “Even with seasonal decline, strong retail demand for pork during the October Pork Month and smaller supplies of competing proteins are likely to limit downward pressure.”
Exports Down Slightly
Exports of U.S. pork were down slightly in August as compared to record shipments in 2020. Sharply higher August exports to Mexico reflected peak shortfalls in their herd, analysts say, which should dissipate over the balance of the year. Exports to Japan, Columbia and the Caribbean more than offset weaker shipments to China.
“We expect negligible improvement in exports to China through year-end, given the sharp decline in pork prices witnessed in recent weeks and strong competition from Brazil and Spain,” Rabobank reports. “We should see steady shipments to most other top markets.”
Higher pork imports in August, up 37% year over year, are putting additional pressure on the domestic market, but Rabobank says they remain a relatively small share of the total supply at 3.8%.
Pork Prices Are Up
Although pork prices are up 17% from a year ago, they are well below peak summer levels, Rabobank says, as a 16% year over year increase in imports more than offset smaller domestic supplies.
“Overall demand remains disappointing due to weaker economic conditions, but it is beginning to stabilize,” analysts write. “We expect further improvement in pork demand as prices normalize, thanks toa better balance between supply and demand.”
Hog prices have come down some, but are still up 38% from 2020. Experts say prices should continue to normalize through year-end as production rebounds following earlier herd health challenges.
Read the Agribusiness Review here.
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