Who's the Prize Winner? ASF's Impact on Global Animal Protein Market
Jennifer Shike, FarmJournal's Pork
November 27, 2019
Hog prices are sharply higher than they were a year ago and analysts expect that trend to continue into 2020 if the U.S. can keep African swine fever (ASF) out of the country’s hog herd. Don Close, animal protein analyst for RaboAgriFinance and RaboResearch Food and Agribusiness Group, told Chip Flory on AgriTalk Tuesday that the reduction of China’s hog herd due to ASF is slowing down, but it’s far from any resolve.
Rebuilding China’s Hog Herd
RaboResearch’s latest animal protein report estimates a 55% reduction in the sow herd which could lead to an additional decline of another 10% to 15% in 2020.
Reports of the Chinese government aggressively encouraging producers to rebuild herds and restock is concerning, Close says. He fears China is pushing to do too much too fast and running a big risk of ASF breaking a second time in some herds by not letting the facilities sit empty long enough.
Long-term, he expects China to rebuild under a much more commercial structure, similar to the U.S. But, it’s going to take time. He expects it could take as much as a 5- to 10-year recovery period once the situation stabilizes.
“Not only do they have to increase their production flow, but with rebuilding breeding stock (grandparents and great-grandparents stock) and commercial barrow and gilt production, we're talking a long pull,” Close says.
Pork Market in 2020
Looking into 2020, lean hog futures are looking promising. But, Close believes those numbers are still very cautious.
“It's difficult to tell somebody don't lock in a year’s worth of production at those levels,” Close says. “But at this time, I would be much more interested in taking any price protection with an option strategy other than straight futures, because this thing still has potential to go higher.”
As pork exports have escalated from across the globe throughout the year, they have essentially cleared the inventories of all the other primary pork producers, he says.
“We've got a situation where all of the other suppliers have been picked clean and 2020 is expected to be the year that that demand comes more and more to the U.S.,” Close says.
Who’s the Winner Now?
When ASF hit China, Close says RaboResearch expected broilers to be the grand prize winner in the protein battle because of price advantages. They believed pork would be well supported on a replacement basis but even though beef would still have success, that it would be in third place.
What they are seeing unfold is a very different picture, he admits.
“As you are well aware, we just got the agreement with China reopening to broiler exports...
more, including audio [11:02 min.]