Pricey pork chops and big question marks?
PEDv casts a dark shadow over the world pork market
by Eric J. BROOKS
Porcine Epidemic Diarrhoea virus (PEDv) has upset virtually all short, medium and long-term world pork market projections. With no vaccine or treatment at this time, PEDv not only causes mass piglet mortality but also delays growth by three to seven days. Hence, alongside mortality losses, the disease will also boost feed costs per hog.
Although the resulting US hog market inflation has greatly boosted revenues above costs, it has done so in a highly uneven manner. Those who avoid PEDv enjoy historically-high returns; those who fall to it suffer both huge losses and the inability to take advantage of once-in-a-lifetime market conditions.
For example, it is a fair assumption that as spring weather warms up, PEDv outbreaks will lessen or taper out, as happens with most livestock diseases. With hogs born during PEDv's late winter peak maturing from August to October, that should lead to the largest shortfall of US hogs for slaughter and very high hog prices at that time.
Thereafter, however, if a vaccine is not found, the onset of colder winter weather could make PEDv-related losses resume. This could keep American hog inventories flat or falling, instead of recovering as projected. If such an outcome occurs, high hog prices and exceptionally wide hog rearing margins, instead of moderating in late 2014, could continue well into 2015.
Uncertainty also arises from PEDv's final impact on Canadian and Mexican hog inventories. At the time of publication, most analysts expect a 10% to 15% decline in total US, Mexican and Canadian hog numbers from their 2013 levels.
However, these assumptions are based on ground level reports as they are on solid USDA data. While Mexico's epidemic can be predicted with somewhat less certainty than America's, Canada's PEDv outbreak is at a much earlier, more contained stage. Therefore, we cannot be certain of PEDv's impact on the number two exporter's capacity to supply the world market.
The crisis also impacts world markets in indirect ways, which is why Mexico, despite being neither a leading producer, nor a leading exporter, is mentioned. As a NAFTA trade partner and buyer of 28% of US exports, Mexico is a leading customer of both US and Canadian pork.
Granted, any declines in Mexico's hog numbers will not on its own reduce the total volume of hog exports. However, with Mexico diverting the number one and number two hog exporters' supplies away from East Asia, that could force Asian importers to boost pork's world price.
Indeed, the market has already put a steep price on PEDv's damage. From US$78.50/head in mid-December, US lean hog prices climbed 55% in less than four months. They set new price records around the US$122/head range prior to this article's publication, besting the previous high by more than 19%. Furthermore, you can expect hog prices to climb substantially higher as the leading exporter's shortfall of hogs ready for slaughter peaks, sometime in early Fall.
Of course, it is impossible to seriously reduce by a tenth or more hog inventories of a country that singlehandedly accounts for a third of the pork exports without seriously impacting the global swine market. This is especially when the US and Canada collectively account for approximately 50% of world pork exports.
The situation also creates new exporting opportunities for Brazil, and complicates the plans of leading importers such as China. With that in mind, we survey all these three leading pork exporters and a country that seems destined to become the world's largest pork importer within a few years.
The full report is published on the May 2014 issue of FEED Business Worldwide. To read the full report, please email inquiry@efeedlink.com to request for a complimentary copy of the magazine, indicating your name, mailing address and title of the report.
