By John DePutter & Dave Milne – April 17, 2019
“Up to 200 million pigs could be culled or die from being infected as African swine fever spreads through China, Rabobank said, by far the highest such forecast yet and underscoring the gravity of the epidemic in the world’s top pork producer.”
– Reuters, Apr. 12, 2019
What it means:
The potential for a massive impact on global markets – both livestock and crop.
No one knows for certain just how extensive the ASF problems really are in China, but Rabobank’s forecast of between 150 million and 200 million dead pigs provides at least some context.
If accurate, those losses alone could be more than double the combined US and Canadian hog herd of around 88 million and be about one-third larger than the entire EU herd of 150 million. In short, it would be a catastrophic loss, representing a significant portion of China’s entire herd, currently estimated between about 360 million and 400 million animals.
According to Rabobank estimates, losses on that scale would lower China’s pork production to around 38 million tonnes in 2019, down 30% from the 54 million tonnes produced in 2019 and potentially the lowest in 20 years. Obviously, China will need to import more pork to offset the loss in domestic production and Rabobank said those imports could rise by 1.5 million tonnes to 4 million, “sucking in all available supplies from the global market.”
The upside: Rising pork exports
US pork exports in January – the latest month for which monthly data is available – were actually down 1% from a year earlier as China’s import tariff on American pork helped to slow business. However, shipments have heated up more recently, with the USDA reporting net US pork sales for the week of March 29 – April 4 at a massive 90,700 tonnes. Of that amount, China bought 85% or 77,700 tonnes.
And it’s not just US pork sales that stand to benefit; it is expected that Europe, Brazil, and Canada will be able to increase shipments to China as well to cover off the shortfall.
Meanwhile, China’s ASF problems and its need to import more pork have fired up prices accordingly. Year-to-date US lean hog futures are up more than 60%, helping to make hogs the third best performing commodity future during the first quarter of this year.
But while a boon to hog producers, the projected hog losses in China also represent a major loss in feed demand. American soybean exports to China are already down sharply due to continued trade tensions between the two sides, and that situation is likely to exacerbated by the possibility that China may eventually need to feed far less hogs.
Of course, China will eventually need to rebuild its domestic hog herd once it gets a firm handle on the ASF problem. But with the crisis still apparently ongoing, farmers in this part of the world may continue to benefit on the animal side, but continue to lose on the soybean side.
It’s rare that Ag-Alert analysts see a cycle get blasted out of its normal rhythm, but this is one case of a global fundamental event that is dramatically affecting the price and profit cycle for hogs. Mind you, the full story has not been written. There are more chapters to go!
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