The announcement that a positive African swine fever (ASF) case has been found inside German borders last week has created widespread market uncertainty, and price gyrations in lean hog futures, combined by active market swings in both cash and wholesale pork prices. Germany continues to be the largest pork producer and exporter of the European Union (EU), but the list of countries that have banned pork or pork products from Germany continues to grow.
When it comes to overall production, the EU is the second largest pork producer in the world, topped only by China. EU production levels are nearly twice U.S. production levels, helping to give a scope to the production levels seen in this part of the world. German production is a little less than 25% of all EU production levels, putting German pork production in line for the third largest individual country, following China and the U.S.
This announcement and subsequent ban on German pork production is a big deal. These moves will continue to create market volatility through the rest of the year, potentially affecting long-term market direction in Germany as well as global markets. The overall short- and long-term effect of this is much less clear as the dust settles following the announcement of ASF in Germany. ASF has yet to be found in commercial pork production within the country, with the only evidence seen in wild boars, which have entered the country, likely over the Poland border. The imminent threat that the disease would be found in the country is not new; it has been tracked and talked about for months, even to the point that temporary fences were put up and aggressive hunting parties have been dispatched in order to hopefully keep out the wild boar population.
The concern for U.S. pork production, and the reason that skyrocketing lean hog prices have not continued following the announcement of the ASF case, is that it is still unknown how much additional pork export business will be driven by these current bans. Germany remains in constant talks with all of its major export partners to redefine the ban of the country's production to "regional" restrictions. But beyond that point, it is expected that other major EU pork producing countries, such as Denmark and Spain, will pick up the majority of current pork exports, which will limit the amount of pork exports sourced from the U.S.
It is likely that some additional pork exports will be seen from many Asian countries that have banned German production, but at this point, it is unclear just how much business can be consistently counted on. This is the main reason why prices have quickly backed away from recent market highs as traders are uncertain of actual tonnage the new developments will represent.
This move has been a much-needed stimulus for overall pork demand and has quickly helped account for a $10 to $15 per cwt rally during the month of September. However, moving prices even higher in the near future will likely be based on additional details of how U.S. pork exports will change due to the latest ASF developments.
For now, speculation will continue to drive market prices. Hopefully a better understanding of potential export demand will be seen by early October.
Rick Kment can be reached at Rick.Kment@dtn.com
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