A new report from Rabobank states that African swine fever (ASF) has now become endemic in China. The report noted that since August 2018, the disease has spread to every province in mainland China, affecting an estimated 150-200 million pigs, which will result in a 30% loss in pork production. This, Rabobank said, is 30% larger than annual U.S. pork production and equivalent to Europe’s annual pork supply.
Further, the bank noted that the losses cannot easily be replaced by other proteins, nor will larger imports be able to fully offset the loss.
“We believe this will result in a net supply gap of almost 10 million metric tons in the total 2019 animal protein supply,” Rabobank said.
Determining the actual impact of the disease was difficult initially due to inaccurate reports and a regional supply imbalance. However, Rabobank said with the full magnitude of herd losses now quantified, global protein customers are scrambling to secure long-term protein supplies. As such, the bank expects available global protein supplies to be redirected to China in an effort to offset the growing protein deficit. This unprecedented shift in trade, Rabobank said, will likely create unexpected product shortfalls in markets previously served by these suppliers, creating short-term market volatility that will ultimately result in higher global protein prices.
“A secular shift towards lower Chinese pork consumption will support increased demand for poultry, beef, seafood and alternative proteins that will shape global production trends,” the bank added.
China hasn’t been the only country affected, however. According to the report, ASF has spread to Vietnam and was more recently discovered in Southeast Asia.
“Based on the commonalities with Chinese production, we expect these markets to suffer sizable ASF herd losses (on a percentage basis) and experience similar difficulties in disease containment,” the bank noted, adding that much of Southeast Asia will have difficulty repopulating herds and securing provisional protein supplies. “ASF losses in Southeast Asia will exacerbate global protein shortfalls, adding further upside pressure to global markets.”
Rabobank emphasized that animal protein companies with an exportable surplus and access to markets in China and Southeast Asia stand to benefit from the impact of ASF.
It noted that the European Union, the U.S. and Brazil "appear best placed to respond to increased import demand for pork and other animal proteins into China and Southeast Asia.”
This opportunity is not without challenge, specifically for the EU and China. Rabobank pointed out that ASF is endemic in parts of Eastern Europe, which means the region could face its own restrictions.
For the U.S., the ongoing trade negotiations and resulting tariffs will remain an uphill battle for exports. Additionally, Rabobank noted that China imposed a ban on U.S. poultry exports in 2015 following the discovery of avian influenza.
June live cattle futures were mostly higher this week. Contracts closed higher Monday and Thursday at $119.475/cwt. and $121.575/cwt., respectively.
May feeder cattle futures were weaker at the beginning of the week but rallied Thursday. Contracts closed slightly higher Monday at $148.875/cwt. but closed lower Wednesday at $147.275/cwt. Contracts posted sharp gains Thursday to close at $150.075/cwt.
The Choice and Select cutouts closed lower Thursday at $226.14/cwt. and $218.97cwt., respectively.
May lean hog futures started the week lower but made significant gains into Thursday’s close. Contracts closed lower Monday at $81.00/cwt. but closed higher Thursday at $90.825/cwt.
In the pork cutout this week, the wholesale pork cutout closed higher at $82.22/cwt. Loins and hams were also higher at $74.29/cwt. and $64.15/cwt., respectively. Bellies closed higher at $148.76/cwt.
Hogs delivered to the western Corn Belt were higher, closing Thursday at $76.16/cwt.
The U.S. Department of Agriculture reported the Eastern Region whole broiler/fryer weighted average price on March 29 at 99.62 cents/lb.
According to USDA, egg prices were steady, with a lower undertone. Offerings were moderate to available. Demand was light to moderate.
Large eggs delivered to the Northeast were unchanged at 89-91 cents/doz. Prices in the Southeast and Midwest were unchanged at 93-96/doz. and 80-83 cents/doz., respectively. Large eggs delivered to California were also unchanged at $1.56/doz.
For turkeys, USDA said the market was steady. Demand was light. The price ranges for hens and toms were unchanged at 80-88 cents/lb. and 78-87 cents/lb., respectively.