Summer futures prices have surged by more than 20 percent since March as extent of China’s problems become clearer
It’s a white-knuckle time in the Canadian hog industry, as farmers, processors and exporters work hard to keep out African swine fever.
However, farmers could end up gripping fistfuls of dollars if the effort is successful and pork prices surge as China and southeast Asian hog herds collapse, increasing demand for imported pork.
“We’re already seeing pretty good increases in cash prices and summer futures prices,” said farmer and Manitoba Pork Council chair George Matheson.
Since March, summer 2019 futures prices have surged by more than 20 percent as the extent of China’s problems has appeared. Cash prices have been quicker to react.
“We haven’t seen prices like that for quite some time,” said Matheson.
Indeed, it’s a good time to be a pig producer and pork exporter in areas that don’t have ASF.
“As a processor selling pork and exporting pork around the world, China has certainly shown signs in the last month to increase their demand and want to buy more pork,” said Claude Vielfaure, who heads HyLife, a major hog production, slaughter, processing and export company headquartered in Manitoba.
“They need to backfill the demand…. They’re buying pork and they’re buying a lot of pork now.”
Vielfaure’s company exports to 20 countries and has operations in a number of countries, including Mexico, Japan and China. Its Chinese joint venture with a domestic partner has not yet been badly ravaged by the ASF plague.
“We’ve been affected on a couple of (hog production) sites (in China), but generally we’ve been able to withstand (the disease outbreak), but the pressure is on as the virus keeps moving.”
Much of the Chinese hog industry has less biosecurity, and it is being much harder hit.
“It looks like at least 40 percent of the hogs have disappeared,” said Vielfaure.
Rabobank’s agricultural research department has drawn similar conclusions.
“In 2019, we expect Chinese pork production losses of 25 percent to 35 percent in response to ASF,” said the bank in its April report.
That creates big opportunities for regions of the world that produce and export pork and are ASF-free.
“The EU, 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,” said the report.
However, Europe’s widespread problems with ASF could complicate its ability to export pork to China.
“The potential for outbreaks to restrict exports from significant pork-producing countries, such as Germany, cannot be ruled out,” said the report.
It is also hard for the United States to capitalize on the increasing Chinese demand due to tariffs slapped on American pork exports as part of the Sino-American trade war.
U.S. chicken, which is an easily accessible alternative meat, isn’t presently available, due to a 2015 Chinese ban because of avian influenza.
Matheson said analysts he has spoken with believe the opportunity to benefit from increased Chinese pork import demand could last for three years.
Rabobank said China can’t easily return to high hog production, with farmers scared of re-infection.
“China’s herd-rebuilding will be slow and take years,” said the report.
It also can’t simply boost its production of other meat sources overnight.
The slump in Chinese pork production will probably see consumers increase their eating of other meats.
“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.”
Matheson said the situation of the Canadian hog industry today is that similar to, “it was the best of times; it was the worst of times.”
Farmers see a golden opportunity to benefit from a multi-year high-priced market in pork.
But they also see grave dangers in the spread of ASF to North America, considering that it has spread across Russia and to Western Europe.
“Will the U.S. and Canada get African swine fever and be unable to export pork, or will they be able to export high-priced pork because of world shortages?” pondered Matheson.
“We’re planning for the worst and hoping for the best.”