… No one knows a loss number for sure but if I was betting, I’d take 100 million.  Everything points to a situation that is out of control and driving many herds to liquidate while the liquidating is good -- or at least better than it will be. China has plenty of pork right now but the situation will not last long… there will not be enough pork available on the world market to backfill and keep pork and food prices in check -- assuming pork demand remains steady… We don’t know the elasticity of demand… for pork in China…

 

 

Wall to wall ASF and hardly anything even close to certain

If you think we don’t know much about production losses in China; we know even less about pork demand in China.

 

Steve Meyer, National Hog Farmer 

Feb 04, 2019

 

The information has all but dried up coming out of China regarding African swine fever. The last government announcement of an “outbreak” was Jan. 21 but no one believes there have been no new cases since then. Maybe not “outbreaks” but there has certainly been new cases.

 

We don’t know much for certain about the situation in China. Several different analysts working from several different information pieces and, thus, several different approaches, have all come up with pig loss numbers near 100 million head for the first year of the outbreak. Last week, one group was quoted as saying that China has already either destroyed or slaughtered 6 million breeding animals – almost the total number in the United States last year. Assuming 15-16 pigs per breeding animal, those missing animals would account for 90 to 96 million market animals in the year after their loss; another number near 100 million. No one knows a loss number for sure but if I was betting, I’d take 100 million.

 

Everything points to a situation that is out of control and driving many herds to liquidate while the liquidating is good -- or at least better than it will be. China has plenty of pork right now but the situation will not last long. They have an aged broiler breeder flock (due to trade sanctions dating back to 2015 against the U.S. and Brazil regarding avian influenza) and beef is far more expensive than pork. When their pork supplies begin to decline (in Q3 we think) there will not be enough pork available on the world market to backfill and keep pork and food prices in check -- assuming pork demand remains steady.

 

That assumption is a huge one. We know that ASF does not impact humans and that pork from ASF-infected animals poses no threat to human health. But such logic hardly ever matters in the face of suspicion (remember what Chinese businesses and the government have foisted on consumers as “food”  – melamine, et. al. – in the past!), fear and ignorance.

 

We don’t know the elasticity of demand (a measure of the sensitivity of prices to quantities) for pork in China but in the U.S. it is in the range of -0.60 to -.070. That means that a 1% decline in pork supply here would cause prices to grow by 1.43 (=1/0.70) to 1.66% (=1/0.70) if demand is stable. If that elasticity applies to China, then a 10% reduction in supply would push pork prices up 14.3 to 16.6% if demand holds constant. But a 5% decline in demand would cut those price increases in half and a 10% decline would erase them completely. Even with the lower supply, prices would be steady. Consumers would eat less pork, but prices would be steady due to the equal reduction in supply and demand.

 

“But someone will be hungry” you say? Yes, unless they eat more tofu or chicken or chickpeas or lentils or vegetables ... While I don’t think there are many good substitutes for pork, there are indeed substitutes. And if people are actually still hungry for pork, they will bid up the price for the available supply. That will mean that demand did not actually fall by 10%, but fell by some lesser amount because consumers were willing to pay more for the limited pounds of pork available.

 

Demand is not consumption. Demand is consumption levels (plural) at various prices (plural) ...

 

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