Pork: Chinese demand should keep Brazilian exports heated

The global supply of pork should remain heated in 2023 as a result of China’s production slowdown since the second half of this year and the expectation of further reductions in slaughter numbers in the European Union and the United Kingdom in response to the increases in food production and energy costs.

The return of African Swine Fever is also another relevant factor since the number of regions affected by the disease has increased compared to the previous year. For instance, considering the largest producing and exporting countries in Europe, except Spain (which should increase production by 1% thanks to Chinese purchases), other countries should all see supply drops, a scenario likely to continue next year. The information comes from the Rabobank study “Prospects for the Brazilian agribusiness in 2023” (free translation).

See below the record of the pork volume (hs 0203) Brazil exported between January 2019 and September 2022, according to DataLiner.

Pork exports | Jan 2019 – Sep 2022 | WTMT

Source: DataLiner (click here to request a demo)

Pork around the world

Please find below the company’s report on the prospects for the international pork market, also a free translation:

In China, the strong sell-off in the breeding sow herd, which began in the middle of last year and intensified in early 2022 due to low local market prices, resulted in a 6.3% year-on-year drop in sow stocks in the second quarter of this year. Such a decrease directly impacted the pork industry’s productive potential, which had been on a recovery trend. It forced imports to heat up in the second half of this year to meet domestic demand and replenish government-controlled strategic stocks.

This new cycle in Chinese pig farming, focused on price and production stabilization, should, in our opinion, represent opportunities to Brazil in terms of international demand, not only due to price competitiveness but also due to Brazil’s supply potential and health security. Therefore, we expect Chinese purchases to resume in 2023, increasing by 5 to 10% over the previous year.

It is important to remember that the arrival of colder seasons in Asia and Europe should increase the number of new cases of ASF and Covid-19. As for ASF, the suspension of vaccine tests in Vietnam and China after a record of deaths after its application should pose an additional challenge to some regions in controlling the virus due to the masking of symptoms in vaccinated and allegedly contaminated animals.

All heads are turned toward the Chinese government’s policy dealing with Covid-19. As seen this year, the zero-tolerance policy and the imposition of lockdowns in large consumer centers directly impacted both local consumption and economic indicators in these regions. The measures implemented this season are expected to be more flexible. This should primarily benefit the food service industry.

Haiti and the Dominican Republic still have new and active cases, representing the biggest risk of the disease coming to Brazil. However, the situation seems under control so far, with the virus still limited to the territory of these two countries. This is partly due to the efforts of neighbors Mexico and the United States, which have increased investments in the region to prevent the spread of the virus.

The sharp drop in margins in the Brazilian market at the start of the year was caused by a combination of a seasonal decline in live hog prices and a record increase in feed prices, which hurt the productive sector, mainly independent producers. On the other hand, the increased disposal of breeders to reduce costs and increase margins helped increase production in the year’s first half. However, it is worth noting that a portion of the producers, despite margin pressure, managed to maintain the production pace, owing to improvements in efficiency and/or good market placement concerning the purchase of animal feed and storage.

If there are no significant interferences from climate and no major changes in the course of the conflict between Ukraine and Russia, the record grain planting in 2023 should increase the offer in the domestic market and reduce the price levels of the input used to produce animal feed, which represents between 70% and 75% of production costs. Regaining the domestic market is one of the greatest challenges for national breeders, which saw an increase in consumption this year due to improved demand for sausages and other processed products.

However, increased beef supply should reduce pork’s competitiveness next year, not only because of the lower price difference but also because of beef’s solid cultural grip on Brazil. Rabobank forecasts a 1% increase in supply in 2023. Exports, in particular, should recover 2% of the volume shipped compared to this year.

The pork industry will have to face challenges right at the beginning of the year. The seasonal reduction in demand from China (which has already built inventories for the Chinese New Year holiday) and the seasonal drop in domestic consumption should put live hog and wholesale/retail pork prices under pressure while the market tests consumer purchasing power.

The search for new export destinations should remain one of the sector’s primary goals for the coming year. With the tendency of recomposition of the Chinese pig herd and the recovery of global supply, an increase in the foreign market competition is expected.

Attention points

Global health risks posed by PSA and PRRS should continue to be one of the main attention points for producers. Still, it can also be an opportunity window for Brazilian exports due to its high competitiveness in the international market. In addition, feed costs should be another critical factor to be monitored, mainly because of the risks of further price increases.

Source: Canal Rural

To read the full original article, please go to: https://www.canalrural.com.br/noticias/pecuaria/suino/carne-suina-exportacoes-para-china-devem-sustentar-producao-brasileira/

Sharing is caring!