Tuesday, May 7, 2019

Pig Ebola In China: Global Pork Prices Are Skyrocketing

Pig ‘Ebola’ Virus Sends Shock Waves Through Global Food Chain: African swine fever in China will impact global food supply and the Virus will move markets, may influence geopolitics.  

What started with a few dozen dead pigs in northeastern China is sending shock waves through the global food chain. Last August, a farm with fewer than 400 hogs on the outskirts of Shenyang was found to harbor African swine fever, the first ever occurrence of the contagious viral disease in the country with half the world’s pigs.

Forty-seven head had died, triggering emergency measures including mass culling and a blockade to stop the transportation of livestock. Within days, a government notice proclaimed the outbreak “effectively controlled.”

It was too late. By then, the disease had literally gone viral, dispersed across hundreds of miles in sickened animals, contaminated food, and in dirt and dust on truck tires and clothing. Nine months later, the contagion has spread nationwide, crossed borders to Mongolia, Vietnam and Cambodia, and bolstered meat markets globally.

While official estimates count 1 million culled hogs, slaughter data suggest 100 times more will be removed from China’s 440 million-strong swine herd in 2019, the Chinese zodiac’s “year of the pig.” The U.S. Department of Agriculture forecast in April a decline of 134 million head -- equivalent to the entire annual output of American pigs -- and the worst slump since the department began counting China’s pigs in the mid 1970s.

“This is an unprecedented situation,” said Arlan Suderman, chief economist for INTL FCStone Inc., who has been analyzing commodity markets for almost four decades. “This will impact food prices globally.”

The strain of African swine fever spreading in Asia is undeniably nasty, killing virtually every pig it infects by a hemorrhagic illness reminiscent of Ebola in humans. It’s not known to sicken people, however. The harm to pigs is especially critical for China, with a $128 billion pork industry and the world’s third-highest per-capita consumption. China's 2017 per-capita pork consumption was almost triple the global average

China’s hog herd may decline as much as 30 percent, said Juan R. Luciano, chief executive officer of Archer-Daniels-Midland Co., one of the biggest agricultural commodity traders. “China will clearly need to import substantial amounts of pork and likely other meat and poultry to satisfy demand,” Luciano told analysts on an April 26 conference call. Chinese meat purchases may also boost sales of soybean meal, a source of livestock feed, in North America, Brazil, and Europe, he said.

Wholesale pork prices in China are already 21 percent higher than a year ago, and have risen in the U.S. and EU after processors sent more of their product to China. The price of bacon in Spain jumped about 20 percent during March, while pork shoulders climbed 17 percent in Germany, according to Interporc, a Madrid-based industry group.

“The potential quantum of this is huge,” said Angus Gidley-Baird, a commodities analyst with Rabobank in Sydney. “It’s the biggest thing to affect the animal-protein market this year, and will probably have a lasting effect for a number of years. It will move markets and possibly influence geopolitical situations.”

The rally has spread to other meats. Australia’s beef exports to China surged 67 percent in the first quarter. In Brazil, shares in meatpackers such as JBS SA and Minerva SA have soared amid optimism of stronger sales to China.

Increased Chinese meat imports will result in higher food costs that impact on economies across the globe. The extent of those ripple effects depends on how quickly the epidemic can be stopped. Official data show a slowdown in the number of pigs affected since late 2018, supporting the government’s assessment that the disease is “under effective control.” Analysts from Morgan Stanley to Citigroup Inc. to the U.S. Department of Agriculture aren’t convinced that the disease isn’t still spreading.

Pork is the largest component of China’s consumer price basket, and its influence on other meat prices means that a doubling of pork prices in China would boost the country’s inflation by 5.4 percent, all other things being equal, according to Citigroup, which is forecasting a 2.6 percent inflation rate for the country in 2019.

The Chinese government will likely treat any pork-related inflation as an extraordinary event separate from general cost increases, said Liu Ligang, chief China economist at Citigroup. in Hong Kong. Still, if rising pork prices elevate inflation beyond a ceiling rate of 3 percent, it could constrain the People’s Bank of China from taking aggressive measures to boost the economy.

“The more field studies people tend to do, the more fear they tend to have,” Liu said. “This is a supply shock, not a demand shock, and as a result this could be transitory. But this could be a prolonged supply shock given the severity of the disease.”

The epidemic could have political repercussions as well. Xi Jinping may want to finalize trade negotiations with U.S. President Donald Trump to both ease the importation of much-needed pork, poultry and beef supplies, and to enable Chinese lawmakers to focus solely on quelling outbreaks, said INTL FCStone’s Suderman.

The contagion is also highlighting the urgent need for government investment in outbreak preparedness, said Amanda Glassman, chief operating officer at the Center for Global Development.
African swine fever in China shows that “animal and human disease surveillance systems are not working as well as they should,” she said. “This should concern everyone given that the potential economic impact of large-scale outbreaks is huge.”

A deadly swine disease is spreading across eastern Asia, infecting thousands of pigs and threatening the world’s largest hog industry. Since emerging in China in August, African swine fever has been detected in neighboring Mongolia and Vietnam, increasing the chances of transmission to other countries. The first outbreak in Cambodia was reported in early April in backyard pigs, about 10 kilometers (6 miles) from the Vietnam border.

1. What is African swine fever?

A highly contagious viral disease which, in its most virulent form, can be 100 percent lethal to domestic pigs and wild boars. There is no vaccine. It is characterized by high fever, loss of appetite, hemorrhages in the skin and internal organs, with death coming in 2-10 days on average. Diarrhea, vomiting, coughing and breathing difficulties are other symptoms.

2. Does it threaten human health?

No. The virus infects pigs, warthogs, European wild boar, American wild pigs, bush pigs, giant forest hogs and peccaries. Still, the disease can have a significant impact on food security through decreased and lost production, as well as on food safety through the movement of disease-infected carcasses that may not be adequately chilled or frozen, leading to bacterial contamination. Culling infected animals and imposing strict containment measures are the only tools available to limit further spread.

3. What’s the concern?

Economics and trade. China has more than 400 million pigs, or over half the world’s swine, and Vietnam has about 27 million. Pork is the principal source of dietary protein in China and accounts for about a third of meat expenditure in Vietnam. The culling of pigs to stem the disease’s spread, along with restrictions on the movement of animals, have hurt the livelihoods of pig producers, cut pork production, pushed prices higher and driven consumers to other sources of protein.

In Mongolia, about 10 percent of the pig population have died or been destroyed due to outbreaks in six provinces since January. The virus was detected in a number of Chinese processed pork products intercepted at airports from Japan to Australia, leading several countries to ban such goods.

In the European Union, where African swine fever emerged in 2014, outbreaks have spread across the region at a rate of about 200 kilometers a year, causing an estimated several billion euros in annual losses. It’s estimated that the introduction of the virus into the U.S. would cost producers more than $4 billion in losses.

4. Where else has the disease shown up?

It’s endemic, or generally present, in sub-Saharan Africa and the Mediterranean island of Sardinia. Over the past several decades, the disease has emerged, and then been eliminated, in parts of Europe, the Caribbean and Brazil. In Europe, outbreaks have been reported this year in Belgium, Bulgaria, Hungary, Latvia, Moldova, Poland, Romania, Russia and Ukraine.

In Africa, Zimbabwe and South Africa are tackling the virus. In China, the Veterinary Bureau has reported infections across 28 provinces, regions and municipalities, including in areas near Beijing, Shanghai, Chengdu, Macau and Hohhot. Vietnam has reported some 366 outbreaks in 20 provinces and cities, with more than 46,600 pigs culled. Chinese scientists studying the genetic evolution of the virus have said it closely resembles a pan-Russian strain.

5. How has China dealt with past disease outbreaks?

When the rotting carcasses of more than 16,000 pigs — some of which were reportedly diseased — were found in early 2013 in the tributaries of the main river running through Shanghai, threatening the region’s water supply, millions of small piggeries were closed in a nationwide program aimed at shifting pork production to larger, more efficient farms.

It resulted in one of the largest culls in history — a reduction in hog numbers equivalent to the disappearance of the entire U.S., Canadian and Mexican pork industries in less than two years.

6. How does the virus spread?

It’s found in all body fluids and tissues of infected domestic pigs and spreads via direct contact with infected animals or ingestion of garbage containing unprocessed infected pig meat or pig meat products. It can survive in feces for several days and possibly longer in urine.

Animals that recover from the illness can carry the virus for several months. Unprocessed meat must be heated to at least 70 degrees Celsius (158 degrees Fahrenheit) for 30 minutes to inactivate the virus.

Analysis of China’s first 21 outbreaks found that feeding pigs swill, or food scraps, was linked to more than 60 percent of cases. Blood-sucking flies, ticks and other insects possibly spread the virus between pigs, as can contaminated premises, vehicles, equipment or clothing. Brazilian researchers blamed the outbreak there on trade and tourism.

7. What’s China doing this time round?

The government said it faces an “arduous task” to control the spread of the disease, with outbreaks in neighboring countries making prevention and tracing complicated. China has culled about 1 million hogs, banned transport of live hogs outside affected provinces and closed trading markets.

The more stringent measures required by farms to implement are favoring larger operations with more than 1,000 head, accelerating consolidation in the industry. Many such farms are planning to integrate their businesses to incorporate breeding, fattening, slaughtering and distribution.

8. How are markets reacting?

The U.S. Department of Agriculture estimated in April a decline in Chinese hog production this year of 134 million head -- equivalent to the entire annual output of American pigs -- and the worst slump since the department began counting China’s pigs in the mid 1970s. That could mean a 10 percent reduction in Chinese pork production this year, leading to a 41 percent jump in pork imports and a 15 percent increase in foreign beef purchases, the USDA said.

Wholesale pork prices in China are already 27 percent higher than a year ago. On the Dalian Commodity Exchange, soybean meal prices have tumbled 19 percent over the same time on concern the disease will cut demand for the animal feed ingredient.

China’s stock market is predicting that the Year of the Pig will bring windfall profits to China’s large publicly owned swine operators. WH Group Ltd., the world’s biggest pork company, has surged 44 percent since the first outbreak, while shares in Muyuan Foodstuff Co., a pig breeder and animal feed producer, have more than doubled.

(Reuters) - Tyson Foods Inc said on Monday that the U.S. meat processing industry could reap significant financial gains from a global shortfall in pork as an incurable hog disease spreads rapidly across Asia.

Tyson projected its U.S. pork, chicken and beef units could all benefit from increased demand linked to outbreaks of African swine fever, after the Arkansas company reported quarterly profits above analysts' estimates. The disease, which is fatal to pigs but harmless to humans, has been detected in China, Vietnam, Cambodia, South Africa and parts of Europe.

With African swine fever in China, the world's top hog producer, about 5 percent of the global protein supply has disappeared as demand is rising, Tyson Chief Executive Noel White said.

China is expected to import more protein to make up for its hog deaths, which White estimated at 150 million to 200 million pigs. The losses could help Tyson by pushing up pork prices and prompting consumers to buy more chicken and beef as alternatives, he said. "African swine fever has the potential to impact the global protein industry on a level that we have never experienced," White said.

Tyson shares rose 2.6 percent at $77.05 in afternoon trading and reached their highest price since early 2018. The company could start benefiting from African swine fever outbreaks late in fiscal year 2019, White said. The disease is already boosting U.S. pork and beef exports and tightening domestic supplies, chicken producer Pilgrim's Pride Corp said last week.

So far, though, U.S. hog prices have climbed faster than those for pork on expectations for increased Chinese demand, crimping processors' margins. The potential for African swine fever to enter the United States represents a risk to Tyson and its rivals, such as WH Group Ltd's Smithfield Foods. U.S. cases would kill hogs and reduce exports.

"The rate in which it has spread over the course of the last 12 months makes it very plausible that it could come to the United States," White said. African swine fever also could hurt Tyson by raising input costs for pork used in prepared food products.

Tyson tempered an annual outlook for its prepared foods unit to a range of 10 percent to 12 percent return on sales, from closer to 12 percent previously. The company plans to raise prices for prepared foods over the next six months to compensate for more expensive raw materials, White said. He said higher meat costs will reduce demand among some consumers.

Last year, sales in Tyson's prepared foods segment reached about $8.7 billion, compared with $4.9 billion in pork, $12 billion in chicken and $15.5 billion in beef. "We do not yet understand how pork and prepared food margins will be anything but impaired under the weight of higher hog costs," J.P. Morgan analyst Ken Goldman said.

Profits in the quarter ended March 30 benefited from higher sales in beef and prepared foods. Excluding certain items, Tyson earned $1.20 per share, beating the average analyst estimate of $1.14. Quarterly sales were $10.44 billion, above expectations for $10.29 billion.