Rabobank released its Pork Quarterly Report this week, indicating that pork producers’ margins were healthy, largely due to declining feed costs, and should remain that way into the second quarter. According to the report, the five-nation finished hog price index averaged 151, an increase of 10 percent over 2012 and the highest level in the last five years.

“The main wildcard in the global market this quarter is the effect of PEDv outbreaks in North America and what this means to pork production in and export from this region this year,” said Albert Vernooij, Rabobank analyst. “Rabobank expects the impact in the United States to be more severe than forecast by the USDA and believes it will likely hamper U.S. pork production growth into 2014. This might also pressure U.S. export volumes, presenting opportunities for the other exporters.”

Porcine Epidemic Diarrhea virus (PEDv) continues to attack the U.S. pork industry, particularly in major pork-producing states. Last week set a new record for the number of herds diagnosed with Porcine Epidemic Diarrhea virus (215). Since it is a non-reportable disease, only farms that have sent samples to a lab and have received a positive diagnosis are known to have PEDv. Many more farms could be infected. In fact, some analysts estimate the loss at more than 4 million pigs.

Mexico and Canada Cases
PEDv outbreaks in Central and Northwest Mexico began around the third quarter of 2013 and in the week of January 20 2014, the first official cases of PEDv were confirmed in Canada’s main pork production region, Manitoba. It has since been identified in several Ontario herds this week as well. The report stated, “Given Canada’s position as the third largest exporter of pork, behind the U.S. and EU, PEDv will limit the amount of pork available to the global trade in the next 12 to 18 months. By comparison, the Mexican pork industry remains optimistic, provided PEDv is satisfactorily controlled. This year, the Mexican government launched a new program to increase the swine inventory through genetic improvements and improve pork meat quality to increase exports.”

Japan and Korea
The Rabobank report stated pork imports in Japan dropped 10.9 percent January-November, mainly due to the depreciation of the Yen, while the Korean pork market has returned to the situation before the devastating swine fever outbreak, which started in April 2009. Lower imports combined with stabilizing domestic production in 2013 has supported price recovery in Korea which will likely continue in 2014 due to the 5.8 percent year-over-year drop in the sow inventory in the third quarter of 2013.

European Union
In the EU, Rabobank expects a positive first quarter in 2014. “Lower feed costs and continued elevated price levels will support the recovery of farmers’ margins after the lows experienced in the first quarter of 2013” said the report. “This is due to a slightly increased EU pork production supported by continually strong productivity growth, and stable to slightly higher consumption and exports. The latter might perform even better than expected if the impact of PEDv in the US is larger than currently estimated.”

In the long term, it remains to be seen how farmers globally will react to lower feed costs and the scale of industry expansion that will follow. In light of the margin pressure most farmers have endured in recent years, Rabobank expects global pork production growth to be measured and in-line with demand. At the same time, steadily growing production in China and Russia will limit export growth potential for traditional suppliers.