High Risks

As many as 200 million hogs could be lost in China because of African swine fever, and fears are it's headed to the U.S.

As many as 200 million hogs could be lost in China because of African swine fever. Tyson Foods and USDA see potential increases in exports, Image by Getty Images

African swine fever in China is now expected to boost global pork and poultry demand. Questions remain as to just how much U.S. meat exporters will benefit from the demand, however.

Noel White, Tyson president and chief executive officer, says there is both opportunity and risk from African swine fever (ASF) and indicates the disease “has the potential to impact the global protein industry on a level that we have never experienced.”

He says ASF has created “an unusual, perhaps unprecedented, time for the protein industry. In my 39 years, I’ve never seen an event that has the potential to change global protein production and consumption patterns as fast as African swine fever does. This situation is fluid and fast-moving, but we’re working with others in the industry, government agencies and producers to prepare in the event ASF spreads to North America.”

THE THREAT IS REAL

“So, I think the threat is real,” White says. “And, I do think there is a distinct possibility it could come to the United States, and we need to be prepared for that. We need to be prepared from a regulatory standpoint.”

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He adds, “a worldwide decrease in pork supply would offer significant upside to our pork business, while also lifting the chicken and beef businesses as substitutes, and increasing raw material costs in our prepared foods business.”

White indicates Tyson would have to raise prices of packaged foods because pork pricing hasn’t kept pace with rising hog costs.

African swine fever and increased slaughter capacity in the U.S. are driving up pork costs and initially outpacing the value of pork, White explains. He
says performance forecasts currently don’t include potential effects from ASF, “as we do not have clarity on when the impact might occur or what the magnitude could be.”

White cites losses of pork in China of as much as 30% of its herd. So far, there is no cure for ASF, which affects hogs but does not affect humans or the food supply. As much as 10 million metric tons of pork product could be lost in China this year.

CHINA IMPORTS FORECAST

USDA’s Foreign Agricultural Service recently forecast China pork imports at a record high this year because of ASF. USDA expects Canada, Brazil, the European Union and the U.S. all to boost exports to China throughout the rest of the year.

In April, USDA forecasted U.S. pork exports to rise 5% over the rest of 2019. Brazil could see as much as a 23% increase in pork exports, and Europe could see an 11% increase.

“We could be at the end of the line for pork purchases, much like we are for soybeans now,” DTN lead analyst Todd Hultman says.

China-based WH Group, owner of Smithfield Foods, reported mid-May its operating profit was down 10% for the first quarter of 2019 compared to a year ago. Despite increasing volume in hog production by 6.7%, WH Group’s big loss was in the hog production area where the Chinese-based company recorded losses in China, Europe and the U.S. Combined, the losses in its hog-production segment were $168 million, of which $157 million was from its U.S. operations.

WH Group cites a decline in hog prices in China because of oversupply. Slaughter in China rose nearly 21% in the first quarter of the year, and pork prices in China were actually down nearly 3% from the first quarter of 2018.

“Having said that, the spread of African swine fever in China has started to reduce its pork production and sow inventories,” WH Group reports. “Hog prices of key markets in the globe moved up notably approaching the end of the period [quarter].”

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