The protein industry is just beginning to understand the impact of the loss of 200 million-plus pigs in China on the worldwide protein markets. Phibro Animal Health Corporation announced disappointing financial results for its third quarter ended March 31, 2019, on a call Monday, including a $5 million decrease in net income and a $3 million decrease in net sales.
“Looking ahead, we do expect substantially weaker sales in China as African swine fever reduces demand. We have reset our expectations for our fiscal year ending June 2019 to reflect the headwinds we are facing, including, among other things, the disruption of African swine fever in China. We continue to believe our business is well positioned to support the global protein industry as it responds to increasing demand,” said Jack Bendheim, Phibro’s chairman, president and chief executive officer.
Bendheim has made multiple trips to China over the last few months to better understand African swine fever (ASF) and its impact on the world’s largest hog producer.
“We are entering a period without precedent in the global production of protein,” Bendheim said. “Rabobank recently published an estimate of 30% of herd loss a few days ago, and my personal opinion is that the loss would be much greater than that.”
His sources in China estimate more than 50% losses in China’s 700-million-head herd. This is equivalent to all of the pigs the rest of the world raises.
ASF is not a new virus, and over the years, many have responded with good biosecurity to manage the virus. Bendheim believes it will be extremely hard for China to manage the virus, however, because they have such a high number of backyard farms.
“You just can't solve this problem,” he said. “But the size of the problem or the opportunity, which is always the other side of a problem, is so great that this will be with us for a long time. This is going to have a phenomenal effect on all protein production around the world.”
Although he hopes Phibro will come up with a breakthrough vaccine, he said he believes someone will be able to find a solution. But this will take time.
In the meantime, he expects the production of swine, poultry and other proteins to increase in the United States, Brazil and other markets to offset the lost animals in China and meet the global demand for pork and other proteins, but he is unsure of the timing and how that will play out.
“In the medium term, we expect most of the protein production necessary to try to fill this gap in supply will occur in countries and species where Phibro has a strong market presence. But we do not have anything near full visibility at this time. From a Phibro point of view, we will be severely curtailing our sales to swine product into China in Q4,” Bendheim said. “As a result of our third-quarter results and reduced expectations to our fourth quarter due to African Swine Fever, we are bringing down our full-year guidance.”
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