Smithfield Sale, PED Virus Jangles Producers’ Nerves at Expo12 June 2013
US - The two hottest topics at the 25th Anniversary World Pork Expo last week were the sale of Smithfield Foods to Shuanghui, Ltd., and the potential impact of porcine epidemic diarrhea (PED) virus. The level of concern about both was high, writes Steve Meyer in his latest "Market Preview" as published in National Hog Farmer magazine.
I addressed what I believe to be the salient points on the Smithfield Foods’ transaction in last week’s column. My thoughts on those points have not changed. However, one additional question was posed: What if exports from Smithfield Foods increase dramatically and, perhaps, the company or the US industry expands to fill the void and then the Chinese decide to wreck the US industry by cutting off imports?
That is a risk. But keep in mind, that’s a risk with or without this merger. It is simply an outgrowth of more exports, regardless of who owns Smithfield Foods. The question of “How many exports are too many exports?” still applies and will still be collectively answered by the way the market incorporates risk.
Jury is Out on PED Virus
As for PED virus, the jury is still out. Several World Pork Expo sessions were devoted to the topic with 113 positive cases confirmed as of last week. They were located in 11 states – 62 in Iowa and 15 in Minnesota. About two-thirds of the cases have been on farms without sows. It appears that the first case was in mid-April and that the virus is genetically 99 per cent similar to a strain identified in China in 2012.
Beyond those facts, one could find a wide array of thoughts and information at World Pork Expo that may or may not be accurate. I won’t repeat them here, but virtually all fell in the “they’re-not-telling-us-everything” camp. But I believe “they” are telling us everything they actually know but what is “known” is fluid at the present time.
Beyond the bad – that is, the bad consequences of this disease for the infected farms – the question is whether it will impact the market. I presume that the one-third of cases on sow farms have resulted in the loss of about three weeks’ worth of pigs. But the number of impacted farms at this point is very small and has occurred over a period of 7-8 weeks. It is very doubtful that those losses will ever be seen against the seasonally-large slaughter totals of October and November. Further spread could change that, of course, but remember that such growth will also be spread over time and December slaughter numbers are huge, too.
The other market impact would be a delay in marketings from the two-thirds of cases that are on “non-sow” farms. PED virus is reported to be much like Transmissible gastroenteritis (TGE), which means affected grow-finish pigs likely spent a week with diarrhea and vomiting and, thus, grew very little. Those pigs will come to market over several weeks’ time and they represent a small minority of farms. I doubt we’ll see any real impact on weights, especially since weights usually decline at this time of year. To have a market impact, I think PED virus will have to become a true epidemic and impact far more pigs than it has so far.
The bigger question is: “How did the PED virus get here?” And the next, more disturbing question is: “Was it accidental or intentional?”
The United States imports a lot of pork production inputs from China. A high proportion of the tetracyclines, vitamins and amino acids come from there. I don’t know if this virus can live long outside of a host but if it can, any of those could have carried it into the United States and infected a number of farms simultaneously.
Some farms dealt with contamination-induced losses last year when some Chinese-made semen tubes impacted semen quality and litter sizes. The problem was not, in my opinion, widespread enough to impact market numbers, but it is not a stretch to envision one of these incidents that could. Perhaps US users of these products need to enforce more control over the production process in China. Or is this a more logical role for government to play?
Perhaps the best news of all from last week was the rally in the pork and hog markets. Net cash hog prices are now high enough to put most US producers in the black and provide profits of $15-$20/head for the most efficient ones. This rally puts hogs near my downward-revised expectations for the summer peaks so I do not expect much more. But prices could stay steady through early August, providing some much-needed positive cash flow.