UTRECHT, The Netherlands – The pace of African Swine Fever outbreaks has slowed but the disease will continue to pressure global pork markets, Rabobank said in its Pork Quarterly Q1 2020 report.

Trade flows will be impacted by uncertainty surrounding changes in market access, government policies and pork producers' decisions to expand their herds, among other factors. As a result, Rabobank is forecasting strong demand for pork, tighter supplies and price volatility in 2020.

“Although the severity of African Swine Fever’s (ASF) impact is subdued in some regions, the scope of the disease has expanded over recent months,” according to Chenjun Pan, Senior Animal Protein Analyst at Rabobank. “The ramifications in 2020 will lead to continuous caution on production expansion in some regions and higher import demand on the global balance sheet.”

China ramped up imports of pork in 2019, and Rabobank expects the momentum to continue in 2020 possibly rising 30 percent to 40 percent above last year's levels. "While European countries will continue to be the major suppliers, the 'phase one' trade deal between the US and China will facilitate more US pork shipments in the coming months," according to the report.

Meanwhile, Rabobank expects US pork production to climb in 2020. Modest growth in the breeding herd coupled with improved productivity is expected to drive 3.2 percent year-over-year production growth.

"Rabobank forecasts at least 300,000 metric ton increase in pork exports to China aided by the recent passage of the 'phase one' trade agreement," Rabobank said in the report. Exports of seasoned ground pork to Japan are expected to improve due to the gradual reduction of tariffs established in the most recent bilateral trade agreement between the US and Japan.

However, the report sounded a lot of caution regarding the outlook for US hog markets. According to the report, "...the expected increase in production will outpace the capacity of the packing industry (particularly in Q4 2020). Labor challenges are expected to remain a constraint in 2020 and limit the packing industry's ability to respond to strong export demand by accelerating slaughter."

Faster line speeds at some pork plants are unlikely to fully offset capacity challenges, the report noted.

Additionally, exports of pork to Mexico are likely to be flat in 2020 due to higher costs and higher domestic production, Rabobank said. Pork production is forecast to increase another 7 percent as farmers expand their herds.

"In 2020, we expect another 12 percent increase in exports from Mexico on the back of continued strength in exports to China and Japan." Rabobank noted that China has overtaken the US as Mexico's second-largest export market by volume, but total value continues to lag.

Europe also is set to increase pork production by 1 percent, according to Rabobank, as prices for pork remain high on firm demand.

However, the 'phase one' trade agreement between the US and China may pressure the European Union on global trade. Factors adding uncertainty to the mix include negotiations for a post-Brexit trade agreement, a US-EU trade agreement and the persistent threat of ASF spread in Europe, according to Rabobank.

"Germany is firming up preventive measures, as outbreaks were confirmed in Poland in December, just 21 km from the German border," Rabobank said in the report.

Rabobank reported that ASF continues to spread in China, but the outbreaks have been mainly confined to smaller farms. More farmers will begin restocking their herds, but this requires keeping gilts. Therefore, pork production in China is expected to drop by 15 percent to 20 percent.

The rapid spread of ASF in China jumpstarted growth in exports of Brazilian pork. Rabobank expects this trend to continue as economic reforms in Brazil lift domestic demand. "With feed costs expected to remain reasonable and price levels expected to remain high, margins along the production chain will be well supported in 2020," Rabobank said.