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Risk, opportunity ahead for global pork sector in 2020

ASF to continue to spread, limiting production, as Asia-Pacific attempts restocking.

Pork production in 2020 will see a further decline, although it will be less than recorded in 2019, as the industry begins to recover from the effects of African swine fever (ASF), Rabobank reported in its "2020 Global Animal Protein Outlook." However, ASF isn’t going away anytime soon and will continue to dominate the animal protein picture, having an impact into the 2020s, the bank said.

The U.S. is expected to increase pork production once again in 2020, but Rabobank said an economic slowdown could hamper domestic consumption. As such, trade remains important for the sector in North America.

The report said productivity gains will exacerbate the U.S. oversupply of pork and poultry, limiting domestic price improvement. However, improved access to critical markets in Mexico and Japan could lead to better prices for exports. The U.S. also remains specifically focused on China trade terms, according to the outlook.

Rabobank forecasts pork production in Brazil to increase 4% year over year in 2020. This increase will be driven by strong demand in export markets, especially in China, which now represents 30% of shipments and is the main destination for Brazilian pork. Growth to China has been facilitated by the approval of additional pork plants for shipments from September to November 2019.

Brazil’s pork exports to Russia were banned in 2018, but Rabobank said the flow picked up again in 2019, although Russia’s demand is much smaller than China's.

Despite the strength of exports due to ASF, Rabobank said only a modest supply response is expected in Europe, with production up 1.25% in 2020 after a marginal increase in 2019. “This muted response will keep prices elevated in Europe in 2020,” the report noted.

The ASF situation in Eastern Europe is also a source of uncertainty for production. Further, Rabobank said environmental policies, especially regarding manure management, continue to pressure producers in Germany and the Netherlands, which is home to 24% of the total European Union sow herd.

Production expansion in Spain continues but may slow slightly in 2020, Rabobank said, adding that the integrated approach in Spain is more responsive to market conditions and may serve as a model for closer supply chain integration in other countries.

According to the outlook, Europe’s pork exports remain important to overall performance in 2020 and should reach a new high in 2020, based on strong trade demand from China and other parts of Asia affected by ASF.

“While the direct beneficiaries are the plants (and storage facilities) holding export licenses, the effects will be felt across the market, as prices remain at high levels,” Rabobank said.

ASF rampant in Asia-Pacific

Regarding China, Rabobank said ASF remains the largest threat to China’s pork chain. Restocking is expected to lead to herd stabilization, but pork meat production will continue to decline in 2020.

ASF has led to a loss of more than half of China’s hog herd in 2019, resulting in fourth-quarter pork prices rising to more than double the same period in 2018, the outlook noted, adding, “The disease will continue to spread in China in 2020, and Rabobank expects pork production to decline further, by 10-15% from 2019 levels, given the low inventory of sows and the ongoing impact of the disease.”

Restocking runs a high risk of reinfection, but Rabobank said many farmers have ambitious plans to restock or invest in new farms.

“Some started restocking herds in previously infected farms in 2019, and while many have failed, some have succeeded,” the bank noted.

According to the report, China’s government has laid out guidelines to encourage production, providing a basis for regional governments to implement their own policies to boost local production.

Driven by soaring hog prices and favorable policies, Rabobank expects investments in restocking and new farms to surge from 2020 onward.

“We expect to see a slight recovery of the hog inventory in [the second half of] 2020, driven by investments during the year. Pork imports will likely reach record levels in 2020. Given the high prices in China, the EU, Brazil and Canada are expected to increase pork shipments to China in 2020,” the report said.

Meanwhile, Rabobank pointed out that the tone in U.S.-China trade talks suggests that China is willing to substantially increase imports of pork from the U.S.

Still, pork trade is full of uncertainty, given rising demands from other parts of Asia where ASF has hit local production and given the impact of politics on trade, Rabobank said.

Driven by sow losses in Vietnam and the Philippines, Rabobank forecasts 2020 pork production in the Association of Southeast Asian Nations (ASEAN) to decline 5% year over year, adding to an estimated 9% decline in 2019 due to losses from ASF outbreaks.

“Restocking efforts in Vietnam will remain slow due to recontagion risks, the existing debt burden of affected household farms and limited production capacity of large biosecure farms,” the report said.

As such, the underlying shortage is expected to keep prices elevated well beyond the peak demand season in early 2020, Rabobank said. Resulting higher hog prices will likely reduce ASEAN pork consumption by 3% in 2020 after a 7% decline in 2019, the bank noted, adding that frozen pork imports dropped 11% year over year.

According to the report, in addition to Vietnam and the Philippines, ASF may spread further in Laos, Cambodia and Myanmar via various vectors.

“We anticipate shifts in household farm production from pork toward poultry and aquaculture. Large-scale corporate farmers are also expected to increase investments to expand capacity through large, biosecure farms and also to increase vertical integration to ensure food safety and strengthen their supply chains,” Rabobank said.

While Malaysia and Indonesia are also at risk of ASF, Rabobank said the potential impact would be less pronounced in these countries than in Vietnam or the Philippines, given pork’s small share of consumption.

In Thailand, overcapacity in pork should slow any demand shift into poultry, although higher broiler costs could erode export margins, the report said.

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