Is ASF in Germany Sending the Wrong Signals to U.S. Pork Producers?

( National Pork Board and the Pork Checkoff )

Forecasting the pork outlook today is like putting together a puzzle with a lot of pieces still missing, says Christine McCracken, Rabobank executive director - animal protein. 

“It is just not completely clear where all of those pigs went. You have to put a lot of pieces of the puzzle together (and make a lot of assumptions) to make the case that the industry is all caught up. It is really hard to know if we have a complete picture right now, as there are still a few missing pieces,” she says. 

Undoubtedly, there are strong opinions in the industry about whether pigs are backed up or not. Regardless, no one has perfect visibility into exactly how many pigs are left, McCracken says. 

“I’m just waiting for the Hogs & Pigs report to give us another piece of the puzzle,” she says. “No one has a perfect crystal ball. But I think USDA, whether you agree or not, is still the best unbiased gauge of supply. Ultimately the market is still the better measure of where we are today though, and today’s market could certainly be much worse.”

Are we moving toward contraction yet?
McCracken says there were signs the U.S. was moving toward contraction in the herd. Some larger producers announced they were exiting the industry and some smaller producers have been forced to leave.

“That seems to happen every few years, but it's just been a long time since we’ve seen it because it's actually been relatively good for producers over the past several years,” she says. 

COVID-19 disruptions and packing plant shutdowns have caused many pork producers to stop and have some hard conversations about how long they can keep going with prices as they are.

However, enter in an outbreak of African swine fever (ASF) in Germany and the market gets a quick breather. This has allowed some producers to lock in better prices than they expected for most of next year, McCracken adds.

“If you look at those prices, many producers could be profitable at those levels. I think it's probably sending all the wrong signals at a pretty critical time for the industry, and that's what worries me,” she says. 

In the short run, this ASF outbreak definitely gave a little life to a market that was struggling, McCracken says.

How will ASF in Germany impact the global marketplace?
She’s optimistic this ASF outbreak is not a real threat to the commercial swine industry in Germany. Most of the commercial pigs in Germany are located several hundred kilometers away from the initial cases of ASF in wild boars.

However, because China, Japan and Korea do not recognize the World Health Organization’s regionalization principle which essentially draws a fence around the affected area where ASF is found, one of the world’s largest exporters is facing a serious challenge.  

“Germany on its own is currently the third largest exporter of pork to China and it shipped more pork in 2019 than the entire U.S. if that helps you put it into perspective,” McCracken says. “So the fact that it can no longer export into China, in the short term will be massively disruptive. Germany has to essentially sell all of its pork within the confines of either Europe or other export destinations which recognize OIE regionalization.”

Problems remain. There are not many additional export destinations right now given large protein supplies and weaker markets due to COVID-19. In addition, offal and ears aren’t very popular in European markets like they are in some of Germany’s export destinations.  

“They're going to take a hit in Germany as they work to redistribute that pork, at least until they gain access to other markets,” McCracken says. “But for other countries with access to those Asian markets, it might give them a bit of a short-term opportunity until they work this out.”

She says the U.S. may pick up some of that, but the reality is other European countries such as Denmark and Spain have very similar pork products and may be a better fit than imports from the Americas. 

“I think the preference in some of those markets is to get product from those European players, rather than the U.S. It doesn't mean we can't see a benefit,” she says. “I think it is still a global meat block. When somebody loses, somebody else gains; but it's probably not the huge long-term opportunity that the market initially thought.”

Labor remains a challenge
As she looks forward to the fourth quarter, McCracken says her major concern is labor. 

“The labor situation continues to be a problem. I hear it pretty much every day, if not every other day, from different packers and different operations,” she says. “Whether it's chicken or beef or pork, I think they all have the same challenge.”

The animal protein industries aren’t the only ones experiencing this issue. It's happening all throughout the food supply chain. 

“Labor will be a big challenge in the fourth quarter. I think that will determine, more than anything, the value of our pigs and how much pork we have available to sell into the market,” she says.

More from Farm Journal's PORK:

ASF in Germany: How Will it Impact Global Pork Trade?

Plant Capacity, Exports and Economics: What's Next for Pig Farmers?

Germany Confirms 7 More African Swine Fever Cases in Wild Boars

 
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