As African swine fever (ASF) spreads beyond China’s borders and throughout Asia, the global implications of what is happening in the pork market are becoming clearer. But Rabobank says it’s still underestimated. Rabobank analysts predict China’s herd loss to reach 55% by the end of 2019.
“ASF is the most significant event in animal protein this year and will have implications for years to come,” the report says.
Although China’s herd loss is estimated at 50% year over year for the first eight months of 2019, ASF is expected to continue to negatively impact production, although the pace will likely slow down due to government control measures and reduced farm numbers.
“We expect China’s pork meat output to drop by 25% in 2019,” Rabobank says. “The scale of the decline expected in China in 2019 is unprecedented and could lead to even lower production in the first half of 2020. This will have effects that last into the coming years.”
As the number of infected countries increases, Rabobank senior protein analyst Christine McCracken told attendees at the 2019 Leman Swine Conference that at least 75% of the world's pork is at risk of ASF. As more countries report ASF outbreaks, there are more potential sources that could bring ASF here or into other countries by plane, she says.
“The spread of ASF in Asia underlines just how critical transboundary movement and the movement of people and pigs into other countries is,” she says. “It's a big concern from the perspective that we still have a lot of potential points of entry at the border, not just in the U.S., but in other countries that are large, pig producing regions as well.”
A Hotbed of Exposure
Southeast Asia has been the hotbed of exposure recently, McCracken says. Vietnam has ASF in every province. Not only is it spreading rapidly in Vietnam, but the situation is being compounded by some of the other foreign animal disease issues that the country has faced in the last several years.
“ASF represents a major and growing challenge for animal protein in Asia,” the report said. “In many Asian countries, pork is the protein of choice, and its reduced availability, as ASF sweeps the continent, is set to bring lasting change.”
In addition to China, ASF has spread into Vietnam, the Philippines, Laos, Cambodia, Myanmar, Timor-Leste and the Korean peninsula.
Historically, Vietnam has been largely self-sufficient in pork. On the other hand, the Philippines has always had a structural reliance on imports, and that is set to grow.
“They're going to be big importers or at least will need a lot of other proteins going into 2020,” McCracken says. Rabobank’s report says that pork imports in Vietnam will rise, but the tight global supply will increase price competition in 2020.
Meanwhile, China’s pork imports are rising and will continue to rise. Both import volumes and prices have been increasing in China in recent months, she says. She expects further increases into Q4, which has historically seen the strongest flows as they build inventory for Chinese New Year.
Shift to Other Proteins
The U.S. is well placed to increase exports of pork to China, subject to trade access, McCracken says. U.S. pork exports year-to-date are up 3% in volume and 1% in value, and the latest Hogs & Pigs Report indicates record numbers in the U.S. hog inventory.
However, the pork supply chain is shifting in some areas around the globe. In Vietnam, more household swine farms are exiting, illegal slaughterhouses are closing, more corporate farms are integrating with slaughterhouses and investments are being made in other proteins such as poultry and aquaculture. The structural shift in consumption will benefit these two protein sources in the long term, both in terms of imports and local production, subject to competitive pricing, the report said.
But, will China follow suit?
“China, for the most part, still loves its pork,” McCracken said.
People shouldn’t assume a shift to beef due to the major price spread between beef and pork, or a switch to chicken just because it’s cheaper. McCracken believes China’s pork imports will continue to rise, but she anticipates some will make the switch to other proteins because of price and availability.
“It may be at least 10 years before we get back to the levels of production that we saw coming into this,” she says. “We’re looking at a very long tail on this, that should lead to a lot of incremental demand for U.S. protein going forward.”
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