African Swine Fever Outbreak Pays Big for Some Crop Leaders

Soybeans in hand ( MGN Image )

Leading agricultural commodity traders believe they will benefit from African swine fever (ASF) upsetting global markets, but just how much they will profit depends on the location of their assets. 

Success will hinge on whether the firms have plants that process soybeans into meal for pig feed in nations where meat-export demand is set to rise, Bloomberg reported.

With China looking for protein and the trade war between the U.S. and China hampering pork trade to the benefit of South America and Europe, Bunge Ltd. is set up for success.

The majority of Bunge’s soybean-processing assets are in South America. Will Sawyer, an animal protein economist at CoBank ACB said he believes Brazil is best placed to supply all meats and then the EU for pork. 

“So in the short-term, South American soybean crush assets are favorable,” Sawyer told Bloomberg.

Bunge has 33% of its oilseed crushing capacity in South America, 26% in Europe and 27% in North America. 

According to Bloomberg, rival Archer-Daniels-Midland Co. might be hobbled for now because of its stake in a major soybean crusher in China, where demand for the oilseed is forecast to drop for the first time in 15 years as the pig disease spreads.

ASF has caused lower feed demand and smaller soybean imports in 2018-19 and 2019-20. But, marketing year 2019-20 soybean production is estimated at 16.8 million tons, up 5.7% compared to previous year, primarily due to increased government subsidies, according to a USDA Foreign Agricultural Service’s Global Agricultural Information Network (GAIN) report. 

Patrick Yau, an analyst at Citigroup Inc., said ADM’s 25% stake in Wilmar International Ltd., which vies with top Chinese food company Cofco Corp. for the spot of the Asian nation’s largest soybean processor, might also take in a hit from ASF.

Wilmar, based in Singapore, flagged negative margins and weak results from its crushing business in the quarter to March 31 due to the deadly pig virus. Meanwhile, Cargill Inc., said earnings from animal nutrition and Chinese oilseed crushing were struck by ASF in the period ended Feb. 28.

Chinese Tariffs Stifle U.S. Pork Producers
Although the U.S. is normally one of the most competitive meat suppliers, Chinese tariffs on pork are still in place and hampering trade for U.S. pork producers.

“U.S. pork production costs are among the lowest in the world with safety and quality that are second to none. But for the retaliatory duties, the United States would be in a perfect position to take advantage of this massive import surge in the world’s largest pork-consuming nation and single handedly put a huge dent in the U.S. trade imbalance with China,” said Nick Giordano, National Pork Producers Council vice president and Counsel of Global Government Affairs. 

Now, Chinese pork buyers are reaching out to those in Europe, Canada and Brazil for supplies. 

“What should have been a time of enormous prosperity and growth for U.S. pork producers and their suppliers will instead fuel jobs, profits and rural development for our competitors,” Giordano said.

However, South America and Europe won’t be able to fill the Asian nation’s shortfall. Bloomberg said this will be a boost for companies whose filings show that a majority of its oilseeds crushing capacity is in North America.

“As China steps up their meat imports, North American assets will also benefit,” CoBank’s Sawyer said. “And should there be an arrangement with China, the dynamics for U.S. meat producers and therefore soy meal suppliers would be very good.” 

Some believe China can rebuild its herd in three to five years, but others like Brett Stuart, president of Global AgriTrends, don’t believe it’s possible for China to rebuild to what it has been.

In the long-term, Bloomberg said a consolidation of the pork sector will end up benefiting crushers in the U.S.

More from Farm Journal’s PORK:
3 Reasons Why ASF is Not Going Away in China

Is U.S. Pork Safe to Eat?

African Swine Fever Losses Cause Export Challenges, Opportunities