Jim Long, President and CEO Genesus Genetics
Last week one wild boar was found in Germany with African Swine Fever. This one dead pig has now resulted in China, South Korea and Japan banning pork shipments from Germany. This in itself has turned the pork world upside down.
On Friday the news of the positive ASF dropped Germany’s hog price from 1.47 Euro/kg to 1.27 Euro/kg (-13.6%) or a decline of about $22 per head.
In the USA Lean Hog Futures Thursday-Friday jumped as much as $13 per head higher.
Germany has exported $1.2 billion of pork to China in the last year it was China’s largest pork supplier. Korea and Japan were also significant markets. Now, these countries will need to find pork somewhere else or go without. The obvious countries to gain from the import ban will be USA, Canada, Brazil, and Spain as they are the only countries that have significant pork supply that can shift to their Asian countries.
Germany which is part of the European Union will be able to continue to move pork to other EU countries other than from ASF restrictive zone (not that big an area). This will probably depress hog prices in other areas of Europe as we doubt the other EU countries can increase non-EU exports to counterbalance the deluge of pork that Germany will put in the EU market.
In the U.S. a market that was already beginning to see the front end of lower hog supplier due to sow herd liquidation will now be getting the dynamics of the market supercharged with enhanced export demand.
It is unfortunate we are in an industry where it appears one’s adversity is another’s opportunity. This is our reality. Europe (Germany) has benefited from China-USA political issues that has restricted China pork imports from USA. EU (Germany) grew the Chinese business. Now it’s stopped cold. Now one China option is to buy more pork from USA or not. It’s also a reason why as an industry we need to be wary of export-driven business. One pig, market disappears?
More efforts should be put into growing domestic demand and consumption. Too many pork events we attend focus is on many things but little if ever talk on how to grow the domestic market. Exports are like a dangerous opiate.
We expect many German Pork farmers wished whoever found the one dead pig, just dug, buried, and shut up. This is a $1.2 billion pig.
We were at a conference a year and a half ago. We argued it was completely wrong that ASF should be a reportable disease. We also wrote this belief in our commentary. A reportable disease if it causes harm to humans and our financial losses. ASF has no human risk. The stupidity of the financial loss is the one dead pig will cost 1+ billion dollars. The worst financial part of ASF will be the closing of exports. It’s insane that an industry can be destroyed by stupid rules put together sixty years ago. With no consideration of the implications to current industry realities.
If ASF ever got to USA or Canada all exports would stop. It can be one pig? Billions would be lost and many producers go bankrupt. The world industry should look at stopping these insane rules on ASF. It should not be a reportable disease.
On August 19 at the NPIC conference, it was suggested by one of our famous ag-economist that hog prices have little upside in the next 12 months. It was predicted we would have more hogs in 2021 than in 2020. They also suggested to hedge a percentage of your future marketing’s. We disagreed then and after.
Lean Hog Futures
|Aug. 19||Sept. 11||Difference|
Since August 19 the Lean Hog Futures have jumped significantly, already on the rise before the German ASF break.
Disclaimer – As an owner of pigs we do have a vested interest in higher hog prices.
Now that Germany is shut out of China. It’s important to look at some China market news. Hog prices are at a near-record level reflecting the reality of significantly lower production due to ASF. The Ministry of Agriculture of China’s latest sow inventory is 26.73 million. It was 44 million in 2017. China is a long way from having enough domestic pork without imports. The price of pigs in 2017 was 14 RMB/kg (88¢ lb.) last week 37 RMB/kg ($2.46 lb.). More USA pork will be going to China due to the German issue.
- U.S. hog market was gaining strength before German ASF break.
- German ASF break means China, Japan, and South Korea market is closed for German imports until they can prove for a minimum 1 year no ASF breaks
- We expect increased exports to China, Japan, and South Korea combined with lower hog slaughter year over year in 2021 this will be quite positive for North American prices.
- A producer called on the weekend and asked if $70 early weans in four weeks? We don’t think so but this is just a reflection of a swing in market attitude.
- Prices are driven by Demand, Supply, and Psychology.
- North American Supply is going down.
- North American Demand is up.
- North American Psychology is going up.
- Europe is the opposite direction.
This is a tough business – fortunes can turn on a dime or one dead pig.