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Pork market shaped by recession, supply/demand imbalance

AlexanderLipko/iStock/Thinkstock young pigs
Rabobank forecasts small upside in trade despite global uncertainties.

According to the latest Rabobank quarterly pork report, global recession is affecting pork demand and increasing volatility. A small upside in trade is expected for this year, and the re-opening of China is raising opportunities but also uncertainties. 

The slowing economy is weighing on demand for pork, raising uncertainties and volatility in the industry. Despite being considered less impacted than more expensive proteins, pork is still facing some pressure on consumption due to challenged household incomes, increased savings, and a potential decline in specific channels. According to the report, managing inflation remains a priority for many governments, requiring careful calibration of interest rates to maintain consumer and business confidence.

A limited upside for trade in 2023 is expected, as supply tightens in exporting countries and rises in importing countries, according to the report.

“Trade is expected to increase modestly in Q1 2023, but it may find growth difficult to sustain through the year, given slow production in major exporting regions like the EU and U.S.,” explains Chenjun Pan, senior analyst of animal protein at Rabobank.

By contrast, Brazil, which continued to grow exports in 2022, is expected to increase production and exports this year. At the same time, the further recovery and growth in local production in Southeast Asia and China will mean demand for imports will ease, particularly in the second half of 2023.

The reopening of the world's largest pork market, China, will impact the global supply-demand balance. “The timing and extent of a demand rebound is uncertain, and will be uneven due to ongoing COVID waves, macroeconomic headwinds, and weak business confidence,” says Pan.

The report also highlights several key factors to watch in Q1 2023 and beyond, including feed grain prices and volatility due to drought in Argentina, poor U.S. harvests, lower ending stock globally, and demand uncertainties. Additionally, herd health, including incidents of African swine fever (ASF), PRRS, and PED, post-COVID consumer demand recovery in China, macroeconomic conditions, and the competitiveness of pork in retail and foodservice channels are also noted.

U.S. signals expansion despite challenges

A slight increase in the U.S. hog inventory in December is likely a “cyclical turning point,” Rabobank noted in the report. Still, given current plant capacity, costs of production, and health challenges, rapid expansion is not expected, leading Rabobank to continue to forecast a 0.2% increase in 2023 pork production.

Regarding prices, the report said hog prices have been trading lower.

“A backlog of ~800,000 hogs following recent Midwestern storms and lackluster pork markets are weighing on lean hog futures, now $10 off their highs,” the report said.

Pork prices have also moved lower as seasonally weaker demand for bellies and ribs is weighing on the cutout. Rabobank said prices are moving lower seasonally but are expected to remain above historical averages through 1H 2023.

The export outlook is favorable, the report noted, as steady sales to Mexico and a recovery in sales to China led Rabobank to forecast a 4% improvement in export volumes in 2023.

China imports to rise only slightly

China’s battle with COVID continues, leading Rabobank to hold a bearish view about the country’s short-term performance. However, the firm is bullish about demand rebound once the latest COVID wave settles.

“There might be pent-up demand via foodservice channels, but there is also a big question mark as to how strong this demand surge could be, given the macroeconomic challenges,” the report noted.

Pork imports in the first eleven months of 2022 declined by 45% year over year. Rabobank forecasts pork imports will increase in 1H 2023, then slow down in 2H. “The whole year of 2023 will likely see slight increase in imports compared with 2022.”









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