As more of the world’s population ascends into the middle class and the world’s hog inventory rebuilds, demand for protein—especially soybean meal and pork—is expected to remain robust into 2020.
“The overriding major trend in this market has been, and will continue to be, the process of rising global incomes,” said Rob Murphy, senior vice president with Memphis-based Informa Economics. Murphy was a presenter at the U.S. Soy Global Trade Exchange event in Minneapolis in September.
That’s important for American soybean farmers, who benefit by growing demand for their crops for animal feed as meat consumption rises globally. Animal agriculture qualifies as a major customer for U.S. soybean farmers, “consuming a whopping 90% of the annual U.S. soybean crop,” according to the U.S. Soy Export Council.
Of course, livestock producers also see the upside of this rising demand for meat worldwide.
“As global population incomes rise, what we see is a switch from plant-protein diets to animal-protein diets,” Murphy told the audience. “As people move from plant-based to animal-based protein, they tend to move to the most efficient and cheapest source of meat.”
For the next five years at least, income gains will be largest in Africa and Asia, where GDP growth will also be strongest, according to Informa projections.
Over the long term, rising global incomes will benefit chicken, turkey, and farm-raised fish, followed by pork, then beef, according to Murphy. However, pork is currently a very competitive meat option.
“Pork has been really cheap because it was at really high levels for a long time,” Murphy said. “Chicken is becoming more competitive, and beef is not competitive at all.”
Informa expects U.S. year-over-year pork exports to increased 5% this year and another 5% next year. By comparison, Murphy projects a 10% drop in 2015 beef exports.
Where’s the Herd?
The United States is the world’s largest exporter of pork products, with 2.2 million metric tons exported in 2014.
However, China and the European Union dominate global production. In 2014, China produced more than 51% of the world’s 110.7 billion pounds of pork production, followed by Europe with 20% market share, according to Murphy. The United States produces only 4% of the global pork supply.
“China’s hog industry is set to grow substantially,” Murphy said. Hog numbers in China fell in 2014 and 2015 due to poor operating margins, which led to heavy culling. “Our guess is they won’t stay down for long,” he added. “Pork prices in China have been on the rise for the past couple of months.” By removing marginal sows, China has also been seeing gains in productivity, or the amount of pork produced per sow.
The long-term trend of falling hog numbers in the European Union is about to end. “We have the bottom pegged for 2016,” said Murphy. “The EU hog inventory is set to reverse.”
U.S. hog numbers are also on the rise following a period of low margins and last year’s outbreak of porcine epidemic diarrhea virus (PEDV), both of which resulted in heavy culling.
“The long-term trend in U.S. inventory numbers is larger,” said Murphy. “We are an efficient producer of pork. We are getting more and more hogs from fewer and fewer sows. Low feed costs should help U.S. hog producers remain profitable. We think U.S. hog producers will remain profitable well into 2016, and they will continue to expand their herds.”
Globally, Informa expects hog numbers to increase dramatically, from about 800 million to roughly 910 million head, which will be very positive for soybean meal demand, he added.
“Global demand for protein meal will remain very robust,” Murphy said. “U.S. domestic demand should remain strong as well.”
Over the next five years alone, Informa forecasts that China’s demand for soybean meal will grow 38%, from about 58 million metric tons to 80 million metric tons.