According to the latest Rabobank quarterly pork report, producers are growing cautious as global uncertainties rise. With inflation outpacing wage growth, lower real wages are expected to negatively impact protein consumption in Q4 2022 and 1H 2023.
Inflation limits near-term growth potential
Historically, as macroeconomic conditions soften, pork does better in most markets than many protein alternatives, yet lower consumer confidence is expected to impact global pork prices. Value-conscious consumers are already seeking out lower-value cuts, trading down from branded to private label alternatives at retail, and limiting foodservice purchases, adding further weakness to premium product markets.
In anticipation of some seasonal demand strength, processors have built inventory to satisfy a modest rebound in Q4 2022. Holiday sales will test the market’s resilience and its ability to absorb premiums. Lower GDP growth expectations in 2023 will limit market needs, slow herd-rebuilding efforts, and impact trade volumes in Q4 2022 and early 2023.
Trade prospects remain steady, despite growing uncertainty
Weaker economic growth expectations will also impact trade volumes in Q4 2022 and early 2023. In Q3 2022, higher pork prices in key exporting nations limited pork’s competitiveness, but pork shipments to most markets were relatively strong through the third quarter, with local supplies insufficient to satisfy demand in key markets in South Korea, Japan, and Mexico. Disappointing shipments into China and a lack of clarity around the prospects for improvement given ongoing Covid-related restrictions have forced other markets to absorb the excess. “Efforts to stabilize production in some regions have been slow due to productivity challenges and consumer uncertainty, resulting in improved trade prospects for 2023,” says Christine McCracken, Senior Analyst – Animal Protein at Rabobank. “Moreover, recent price setbacks and government interventions to stabilize food prices could work to strengthen demand.”
Challenging 2022 harvest places burden on next Brazilian crop
Feed costs remain near record levels after disappointing harvests in the US, parts of Europe, and Asia, resulting in near-record-low grain and oilseed inventories and historically high prices. The acreage of corn and soybeans being planted in the Southern Hemisphere could help ease, but not eliminate, the strain in 2023. Logistics are presenting additional challenges to the market, adding further costs and volatility.
Competition for reduced grain and oilseed inventories and the resulting price increases are compounding challenges producers face from labor and energy costs. Producers’ growth plans remain muted in most regions, with limited growth in the sow herd expected to curb 2023 global pork production. “With few prospects for cost relief and limited visibility around the strength of consumer demand given the challenging economic environment in 2023, producers have scaled back plans to add to their herds,” explains McCracken. “Global production is expected to fall 2% in 2022 and see almost no material growth in 2023, with production in key growing regions significantly lower.”
Source : Rabobank