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Rabobank: Global pork industry cautiously optimistic

African swine fever now responsible for estimated 25% decline in global hog herd.

African swine fever (ASF) is responsible for an estimated 25% decline in the global hog herd, yet the world remains cautiously optimistic on the potential market demand for pork, according to the latest Rabobank “Pork Quarterly Q4 2019” report.

“The allure of potential record-breaking exports has, thus far, been outdone by the risks,” the report noted. “Restrictive trade policies and inconsistent export demand create a degree of uncertainty that makes production increases less compelling. The growing threat of ASF has many producers reluctant to add production as the risks of herd losses and/or trade disruption mount.”

While some producers face regional environmental and regulatory challenges that limit growth, Rabobank said they may still find adequate economic incentive to expand in the face of an expected 5-10 million metric ton global pork deficit in 2020.

This is especially possible since Rabobank said global pork prices continue to rise as a result of protein shortfalls intensifying competition for a shrinking supply.

Rabobank expects ongoing price increases through the fourth quarter of 2019 and into 2020 as markets work to balance supply and demand.

Specific to China, the report said the country’s ability to replace lost production is limited in the short run.

“Industry efforts to replace lost production have, to date, been met with limited success. Without an effective vaccine, it will be challenging for China to quickly replace the 55% of the herd it lost to African swine fever and for herd losses in other parts of Asia to recover.”

Despite the challenges ahead, Rabobank reported efforts are underway to expand production, particularly with China’s largest operations, as they offer better biosecurity controls.

“Successful repopulation of large commercial operations could stabilize market losses in 2020, but a full recovery could take several years,” the report said.

Rabobank expects a rebound in production beginning in 2021.

For now, the report relayed that year-to-date pork imports are 40% higher year over year, with volumes surging since May. Rabobank said imports in July and August increased by 100% and 76% year over year, respectively. Spain, Germany, Canada, Brazil and the U.S. remain top suppliers.

Rabobank said it expects the pace of pork imports to continue in the fourth quarter of 2019 and the first quarter of 2020, "as the pork supply gap will likely widen in the coming months.”

Poor returns, disease risk limit growth 

According to the report, U.S. producers remain relatively cautious about the outlook for export-led growth, as record production and unpredictable trade access have yielded disappointing market returns.

“With record production already straining the available labor supply, particularly at the packer level, there are natural constraints on the industry’s ability to expand the sow herd beyond 3% in 2020,” Rabobank said.

However, assuming that a trade deal with China does transpire and economic incentives are in place, Rabobank said producers will push for growth. Given labor constraints, however, the report said future growth will likely occur through increasing hog weights and not herd numbers.

The Canadian hog herd has seen limited growth in recent years because poor returns and regulations have constrained growth, the report said. Additionally, a recent outbreak of porcine epidemic diarrhea virus on the prairies and the ban on pork shipments to China have exacerbated market difficulties. As such, Rabobank forecasts little to no growth in the Canadian herd in 2020.

Regarding Europe, the report said the risk of ASF spreading is a major constraint on new production in the region. Further, regulatory initiatives to limit animal-based protein production within the European Union are rising and are likely to constrain new production, Rabobank noted.

“We have seen some pockets of production growth on the continent in 2019, specifically Spain, but the total increase will be marginal,” the bank said.

For 2020, Rabobank is forecasting pork production growth in the EU of just over 1%.

The report had good news for Latin America, saying, “With no immediate threat of ASF and relatively few restrictions on trade, Brazil, Chile and Mexico are well positioned to add production.” Rabobank added that, of these, it expects Brazil to be best suited for growth.

Despite earlier volatility, Brazil is expected to increase production by 4% in 2020.

ASF making the rounds

Since the first outbreak of ASF in South Korea was reported on Sept. 17, Rabobank said a total of 14 outbreaks have been confirmed within Gyeonggi province and Incheon Metropolitan City. Culling reportedly has reached more than 153,000 pigs, or 1.3% of the national herd of 11.3 million. Rabobank said both provinces account for 38% of Korea’s pig herd.

According to the report, Korea’s Ministry of Agriculture, Food & Rural Affairs ordered the elimination of all pigs raised and sold in the outbreak areas of Paju and Gimpo to prevent further spread of ASF.

Vietnam has seen a far greater impact, the report showed.

“As of early October 2019, approximately 5.47 million pigs, or 19% of Vietnam’s swine herd, had been lost to ASF," Rabobank reported, adding that it expects Vietnam’s pork production to decline 20% (550,000 metric tons) this year versus the year before.

Additionally, Rabobank said re-herding efforts by household farms in northern Vietnam to increase supplies for the Tết holiday suffered some setbacks with the re-emergence of ASF in areas previously declared free of outbreaks for more than 30 days.

As the disease continues to spread, imports to affected regions are expected to increase, although consumer demand may suffer for a time as consumers turn to cheaper protein alternatives. Also, although ASF does not spread to people, some consumers have still avoided eating pork due to safety concerns.

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