NEW YORK – There has been quite a bit of discussion related to how the drought and its impact on feed prices may impact animal protein processors. The Food & Agribusiness Research and Advisory group at Rabobank anticipates some weakness in pork prices in the first and second quarters of 2013 due to pressures on production and limited growth in global consumption levels.

The Rabobank group highlighted three “swing factors” it said will impact pork prices during the year, including declines in European hog production due to new housing regulations; how much pork China imports during the year; and whether U.S. production will continue to expand despite a spike in feed costs.

Higher prices for pork are expected and necessary for 2013, as the drought in the United States and Black Sea region last year has led to low inventories of feed crops, and adverse weather in pork-producing countries continues to limit production expansion, according to the Research and Advisory Group. There is now no margin for error for world crop production, with pork production and pork pricing in the second half of 2013 highly dependent upon crop growing conditions. There is also uncertainty regarding the pace and magnitude of European Union enforcement of the ban on sow crates.

The pace of pork demand growth is the primary unknown for industry margins in 2013, and is dependent upon economic growth in the developing world, according to Rabobank.

“Despite the higher feed input costs, the U.S. swine breeding herd has modestly expanded and large scale farming continues to develop at a rapid pace in China, Russia and Brazil,” said David Nelson, an analyst with Rabobank. “There seems to be limited opportunity for a significant increase in pork prices, given this expansion. Chinese hog supplies appear to be sufficient, but recovery in the Chinese economy could stimulate demand growth.”

Strong Chinese demand ahead of the Chinese New Year in February supported global pork prices early in 2013. However, bank analysts said, price movements in China will be a key indicator for the year as the market moves into Q2. Rabobank forecast global pork prices may come under slight pressure because production growth in China, the U.S., Brazil, and Russia is expected to be higher than global consumption growth.