Rabobank retreats from its China forecast

In July this year the Rabobank published its view of where global pork prices were going in the second half of 2015. It was entitled, “China’s Shrinking Hog Herd to Ignite Global Pork Trade” and it centred on the apparently huge reduction in the Chinese pig breeding herd. From this observed “fact” Rabobank predicted that total Chinese pork imports would reach 2 million tonnes in 2015. This implied a large increase in imports in Q3 and Q4 2015 (nearly double the normal figure for the second half of the year). Furthermore, this surge in imports would then support global pork prices – especially in the USA, according to Rabobank. I queried Rabobank’s bullish view in several issues of Whole Hog and my latest critique is presented in the November issue. The Dutch analysts have recently contacted Whole Hog to admit that they no longer support their forecast.

China import forecastWhere did Rabobank go wrong? Simply, either the supply contraction was not as large as the official Chinese livestock census was indicating, or consumer demand was not so strong, or there has been a lot of smuggling: or a combination of all these factors has occurred. I will focus on the first of these parameters because it illustrates a lesson  known to all good builders, engineers, mechanics and economists – it you don’t know the quality of the raw materials then you can’t be sure of the quality of the finished product.

The latest trade data describes Chinese pigmeat imports for the first ten months of 2015. The YTD comparison with 2014 shows an increase of 9% in total imports. Now, import data are not perfect but they are generally accurate and, crucially, can be verified by reference to their counterparts – the export data. The EU’s trade with China (which accounts for c. 70% of the Chinese import trade in 2015) continue to show gains of around 33% in the Jan-October YTD and it is the EU exporters who have made the big gains in this market in 2015. However, although total YoY sales are up by nearly 40% in the month of October my calculation is that total Chinese pork imports in 2015  are likely to be around 1.57 million tonnes in the full year i.e. around 200,000 MT more than the total for 2014—that’s a hike of about 15% and a lot less than Rabobank forecast in the summer.  Whole Hog’s forecast is shown in the chart here.

For the record, Rabobank’s view in July and August 2015 was, “For 2015, Rabobank expects China’s pork production to decline by 6.5%, the third-largest decline in production in the last 40 years.” I have never taken Chinese official data at face value but it seems to me that Rabobank’s analysts did –and that may have been their undoing. I have spoken with many experienced analysts that work for prestigious global organisations who say that they do not believe any officially published Chinese numbers. As one of these analysts pointed out to me – which country in the world never revises its GDP and key economic numbers (or its livestock census data)? You guessed right – China.

This would all be amusing (a joke at Rabobank’s expense) except that the Chinese demand for pigmeat is now often cited as a key driver in global pork prices. But, as Rabobank’s experience may illustrate, we cannot be sure of the quality of the basic statistics in China and this then makes it difficult to accurately forecast pig prices and analyse pigmeat markets in the rest of the world.  Well, it means we have to think a bit harder and be more careful about data sources. And that’s what Whole Hog tries to do.