The Chinese pork market is booming, thanks to an ongoing
reduction of the world's largest pig herd, Genus said - but prices elsewhere are sagging.
The genetic technology company, which supplies the
livestock industry, reports a sharply divergent pork market, as prospects in
Asia boom, while pressure increases in other
"Market conditions were generally challenging for Genus's
customers with the exception of China," the company said, of its pork business.
Genus reported at "significant turnaround" in the
performance its Chinese business.
The company's pig business outside Asia grew profits by 9%
over the last six months of 2015, to £32.2m, while the non-Asian bovine
business was down 24% to £9.1m.
But profits in the group's Asian pig and bovine business
rose by £87%, to £5.8m.
Pork prices rallying
Chinese pork prices are rallying, as the sharp reduction in
Chinese pig numbers supports the market.
"Since the late spring of 2015, pork prices have rebounded
and remained at high levels over the last six months," Genus said.
"Prices finished the year 20% above the prior year as
sustained reductions in the sow herd in China since 2014 has now led to the pork
market moving from over supply to tight supply."
The Chinese pork industry has been shrinking, amid a government
drive to rationalise the world's biggest pig herd, reducing the number of small
"The outlook is for supply to remain constrained in 2016
with a government focus on improving environmental control favouring growth of
larger, more technified producers," Genus said.
Meanwhile, Russian production growth is expected to resume
in spring, as domestic producers up their game in a bid to make up for missing
imports from Europe.
But sink elsewhere…
But despite this upbeat outlook for the commercial pork
industry in China, Genus said that market conditions for global pork were "challenging
in most regions".
During the last six months of 2015, prices in North America
were around 30% lower, Genus said, as facilities operated close to capacity,
glutting the market.
"Despite the loss-making conditions, producers continued to
modestly expand herds as strong balance sheets and low input costs for corn and
soya provided some support," Genus said.
And in Europe "the outlook for producers remains challenging
in the short-term".
Pressure in Europe…
The European pork industry is under pressure from increased production,
as well as the export barriers to Russia.
Pork prices were down around 9% year-on-year, Genus said,
leaving profit margins "significantly challenging."
In Brazil, prices ticked up in the last six months of 2015,
helped by strong demand from Russia, and the weakening real.
"However while prices were healthy, they were still 9% lower
than the strong period in the prior year," Genus said.
"The outlook for domestic demand is under pressure from the
general economic situation in Brazil."
Genus to develop
Genus upped its research and development budget by 19%, to £15.7m.
Toward the end of last year, Genus announced the development
of genetically pigs resistant to the PRRS virus.
Genus said the virus, "the most significant and harmful pig
disease faced by many farmers globally," caused "reproductive failure, reduced
growth and premature death in millions of pigs annually".
"The production of
PRRSv resistant pigs is a significant breakthrough in combating this
devastating porcine disease and a potential game-changer for the pork industry."
Genus expects that it will be at least five-years until PRRS
resistant animals are available to farmers.
Overall, Genus reported revenues of £188.3m in the last six
months of 2015, down 5.1% year on year.
Pre-tax profits came in at £23.8m for the second half of
2015, down 3.6%.
Broker VSA Capital, keeping a "sell" rating on Genus shares, termed the results "uninspiring... reflecting
a number of the well-understood headwinds in the global dairy, beef and pig
The broker added that the results leave Genus behind the pace needed to meet expectations for the year to the end of June, for which the market consensus is for the group to report pre-tax profits of £49.0m, on revenues up 2.8% at £409.8m.
Genus shares were down 1.7%, to £14.55 in early afternoon
deals in London.