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China has plenty of pork right now but the situation will not last long. plej920-GettyImages

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.

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).
If you think we don’t know much about production losses in China; we know even less about pork demand in China. Beyond rumors, the only indicator we have is price. Current hog prices indicate that supplies are ample relative to hog demand. But the ultimate metric is retail pork price. Further, we will need to know the retail price after supplies begin to tighten before we know whether demand has softened. Until that happens in Q3, we will look for any evidence we can about Chinese consumer attitudes toward pork but I think anything conclusive will be quite rare.

The situation in the EU is still concerning but reasonably stable. There have still been no positive reports from Germany. One encouraging note from Germany points to 42% more wild boars being harvested in 2017- 2018 than one year earlier (https://www.dw.com/en/african-swine-fever-what-you-need-to-know/a-47264858). That helps, but there are still several million left. The Danes are building a fence along their border with Germany, but we’re not confident that 5-foot welded wire will stop all of the potential border crossers, especially with 8-inch holes left periodically to allow the movement of “small mammals.” In my experience, an 8-inch hole is nothing but a starter for a gap the exact size of an adult pig!

And what about us? Foreign animal disease prevention and preparedness has been on the top of some peoples’ agendas for a long time. Customs agents and their trusty beagle dogs are at work every day finding all sorts of potentially dangerous meat products in airports and other border crossings. But we all know they aren’t 100% effective. Should a contaminated product get through, it is critical that neither it nor any waste from it get to a pig – and yet 21 states still allow garbage to be fed to pigs. Yes, it is supposed to be thoroughly cooked, but does that happen every time? Wouldn’t placing that product in a landfill or incinerating it be safer? I’m sure it is more costly, but ASF in the U.S. would be massively costly to U.S. producers and, ultimately, consumers.

USDA has a number of protocols in place should suspect foreign animal disease cases (including ASF) be found. But to me, that is a quirky view, since animal health officials prevent ongoing surveillance for FADs. That quirk: If you don’t have a disease in your country, you shouldn’t be looking for it because looking for it implies that it is present. And we wouldn’t want to imply that a disease is present as the OIE (world animal health organization) could presumably put sanctions on us because the disease must be present or we wouldn’t be looking for it, right? If that all sounds like a livestock version of “Who’s On First” it should. Except there is nothing funny about it. With a disease this devastating on the prowl, should we not have proverbial “canaries in the mineshafts” to find the earliest hint of a problem? I’m just an economist with a only a dangerous amount of animal disease knowledge, but logic should still apply, shouldn’t it?

And that brings us to us – you and I who are involved in the pork industry. We must do everything right. From quarantining (probably not the right word but you get the gist) feed ingredients from China to managing/limiting exposure to outsiders, whether domestic or foreign, to something as simple as getting the name right, we have to step up our game. Yes, I keep running across people who know better, referring to African swine fever as African swine flu. It’s easy to do since they are both “F” words, but we must get it right if we are to have a chance of limiting demand impacts in the U.S. People do get swine flu. They don’t get swine fever. We have to keep these clear in our communications!

Nit picky? I plead guilty. But little things count if we are to survive this without calamity. 

Source: Steve Meyer, who is solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.

 

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