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Global pork market experts tell you what will be the global pig industry in 2018

2019/03/01 17:23
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The fourth quarter of 2017 has just ended. At the beginning of the new year, we are looking at the past and looking forward to the problems that the global pig industry may face in 2018. The global pig industry has generally been smooth in the past 12 months.

There were no major disease outbreaks in 2017; global trade, consumer spending and economic conditions are on the rise; the investment environment is also very good. An example of this view is that in 2017, the stocks of pigs in the three major exporting countries of the United States, Canada and Denmark are expanding, although the prices of live pigs in these countries have been declining in the second half of 2017, see Figure 1. Overall, EU stockpiles are also expanding (estimated from the June 2017 census results). In short, the situation is all right.

Figure 1 - US daily hog prices, April-December 2010.

Prospects for the pig industry in 2018: optimistic or pessimistic?

Looking ahead, the prospects for 2018 may depend on your attitude towards life. Just like a half full cup, do you see half or half empty? Personal opinion: I think "the cup is half empty", and now you should be cautious because the "renewable glass resources" are not obvious. But others may think that there will be more opportunities for expansion and investment in 2018. Next, I will list the reasons that need to be cautious and worthy of optimism.

If we do not consider fundamentals for the time being, there seems to be sufficient incentives for the major pork exporters to price and profit at the end of 2016 and early 2017 to allow them to expand their stocks in 2017. Exports to China are also booming – especially for pigs. These observations are all related and there is a causal relationship.

During the 2016/17 period, the main driving force for hog prices around the world was the increase in sales of pigs to China's exports, which had a huge impact on the profitability of farmers and processors. In 2017, this part of China's export growth slowed down. This is the first reason I said that we need to be cautious, as shown in Figure 2.

Figure 2 Total pork imports from China from October 2012 to October 2017

  In 2017, the growth of pork sales to China decreased

Starting from around April 2017, the sales rate of Western pork exported to China showed a downward trend. As of the writing of this report, the amount of pork imported from China in the first 10 months of 2017 has dropped by about 20% year-on-year. If an important component of pork export demand slows down, this is a signal that cannot be ignored: attention may be followed by an overall slowdown. I expect China's imports to fall by about 15-20% in 2017.

It can be said that although the export sales to China have decreased compared with 2016, this forecast still means that before the new environmental protection law caused the decline of domestic pig stocks and the expansion of new large-scale “modern agriculture” pig enterprises, with 2011 - 2014 Compared with the level of China in the year, China imports an additional 1 million tons of pork. Crucially, this extra 1 million tons accounts for about 13% of the current global pork trade each year.

For a market where market information is far from perfect, this number should not be underestimated. This is another reason why I think we need to be cautious – as of 2018, we know very little about the dynamics of the key customer of pork in the global market.

Another point: luck

The discussion about global exports in 2017 reminds me of another key point – luck. As mentioned earlier, in 2015 the Chinese authorities began implementing new regulations to control pollution on the farm. As small-scale pig farmers are forced to close down, China's pork supply has shrunk, the number of sows has fallen, and import demand has increased.

At the same time, South Korea has developed foot-and-mouth disease (FMD), and pig epidemic diarrhea (PED) has occurred in Japan and Mexico. All of these incidents affected the local pork supply in countries with existing import infrastructure, and the god of luck began to disregard North America and Europe, and its pork supply expanded.
Figure 3 - Chinese hog prices, 2009-2017 October (net weight, weekly)

Processors in the US and Europe have publicly discussed why Chinese consumers are critical to hog prices and effectively avoiding the possible downward trend in the global pig price cycle. Although the dramatic change in 2016 did not extend until the end of 2017, the driving force behind maintaining the optimistic trend of pig prices in the first half of the year is not lacking.

Figure 4 - Chinese pig slaughter and breeding stock, April 2010 to October 2017


Weak prices, market balance is changing

I think the momentum in 2017 is weakening. Will good luck continue? This question keeps me cautious about the prospects of 2018. The price is weak and the market fundamentals may have changed.

In addition, global supply is increasing, and if major exporters are expanding their stocks and stocks in 2017, the new year will need to find a “second China” to absorb the increase in pork supply. Or to put it another way, "Lucky Goddess" is still smiling?

What will the political situation in 2018 bring?

Another cautious reason comes from the 2017 political discussion. The consensus on global trade liberalization for consumers is challenged by US President Trump, the progress of free trade agreements has stopped (such as the Trans-Pacific Partnership, TPP), the North Atlantic Free Trade Agreement (NAFTA) is renegotiating, the world Trade organizations (WTOs) have been questioned, and trade wars with China have also been put on the agenda.

This is not funny. For those who have had the only global trade business experience (since 2000) from liberalization and civilized dialogue, there may be an impact. I am familiar with the "trade wars" that bring additional costs to companies in the United States and the European Union, as well as in the United States and Canada.

Moreover, in the UK and Europe, Brexit may easily become the first example of a reversal of the World Free Trade Agreement. All of this may have the feeling of political talk, but companies in the pork value chain need to consider the uncertainty created by politicians – and their ability to make decisions. Don't be self-righteous.

Normal trade mode interruption

Any bad political judgments in the North American Free Trade Agreement renegotiation or the Brexit discussions in the UK and the EU can easily lead to major confusion in the so-called “normal” trade pattern.

This is a new factor for companies. When I study the "actors" of these political activities, I think that the probability of such a bad judgment is 30%-40%. This again shows my cautious attitude towards 2018.

Positive factor

At the beginning of the review, I pointed out that I would give a reason to be optimistic about the market direction in 2018. In six words: "global economic growth." The International Monetary Fund (IMF) pointed out in a recent statement that the global economy has been performing well. The forecast for October last year was: 3.6% of the economic growth in 2018, and the increase in 319 was 3.7%. I think growth may exceed 4%.

The number of growth may be revised, but in fact, one of the characteristics of the global export market in 2017 before any revision is the strong import demand of many small pork markets for large exporting countries.

Figure 5 - Global Pig Price Cycle, January 2011 to December 2017


Robust market and consumer income

Although some of these growth is due to local disease outbreaks or productivity problems, others are due to the impact of bilateral free trade agreements, but I believe that this growth is due to the original economic conditions of the market and consumer income. To. This is crucial: the IMF’s positive view of the world economic situation is also important. More economic activity and higher consumer income are a reason why the global pig industry should be optimistic.

The charts I have listed here illustrate some of the major drivers of global pig prices and global trade in 2018. They are not the only important statistics, but they are an important part of the story. At the beginning of the new year, I recommend reviewing these data on a regular basis, which will be a useful way to deal with the uncertainty of 2018. Whenever you need to look at these numbers, I wish you peace and prosperity in 2018.

Author: global pork market expert Dr. John Strak

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