PEDV Will Cause Significant Shortfall, Other Meats to Fill the Gap26 March 2014
US - Rabobank has published a new report on the impact of the Porcine Epidemic Diarrhea Virus (PEDv) on the North American herd, forecasting significant impacts on production and slaughter through 2015, and identifying the opportunity for US poultry to step into the market gap.
In the report, published by the bank’s Food & Agribusiness Research (FAR) and Advisory team, Rabobank says that PEDv thus far has impacted about 60 percent of the U.S. breeding herd, 28 per cent of the Mexican herd, and is beginning to develop in Canada. If PEDv spreads in Canada and Mexico at the pace seen in the US, Rabobank says that North American hog slaughter could decline by nearly 18.5 million hogs over 2014 and 2015, or 12.5 per cent relative to 2013 levels. Overall US pork production is anticipated to decline six to seven per cent in 2014, the most in more than 30 years.
“In the US, we see the outbreak of PEDv causing a significant shortfall in the availability of market hogs in 2014 – to the tune of 12.5 million hogs or 11 per cent of annual slaughter,” explained Rabobank Analyst William Sawyer.
“Given the ever-rising number of PEDv cases reported, coupled with a six-month average lifecycle, the months of August through October are likely to be the tightest for processors, where slaughter could decline by 15 – 25 per cent against 2013 levels. If the virus continues at its current rate, the shortfall to US slaughter in 2014 could be as much as 15 million hogs.”
The specific origin of PEDv in the US has not been definitively identified but comparison of strains of PEDv in the US have indicated a close relationship with strains in China. What is clear is that once the virus enters a region, it can spread quite easily and rapidly throughout an entire population. The most common avenue is on livestock and farm equipment that come into contact with hogs positive with PEDv or their feces.
In regard to productivity, 2014 will be a story of “the haves and have-nots” where hog producers who experienced mild cases of PEDv, or none at all, could realize margins of more than $60 per head, the highest calendar year average seen in Rabobank’s 40-year record. Conversely, hog producers who have had difficulty eradicating the virus could suffer significant losses as the pain of the high fixed costs of modern hog production compounds prolonged periods of weak productivity.
Packers for the year to date have been in a “haves” position as the fear of possible stockouts have pushed pork cutout prices up much faster than hog prices. The gross margin for packers reached $63 per head, up from $37 this time last year. Profitability is likely to wane in the spring and summer, as prices continue to climb, testing pork demand, and hog shortages force packers to idle plants.
The real winner in the PEDv situation, however, will be the US poultry industry. US beef production is forecast to decline by nearly six per cent in 2014 and, coupled with Rabobank’s estimate of six to seven per cent less pork production, this implies an exceptional opportunity for the US chicken industry as the protein of last resort.
US chicken production would have to rise by eight to nine per cent to offset the shortfall from beef and pork, but a limited breeder flock and continued high demand for fertilized eggs from Mexico will keep supply growth restrained.
As a result, Rabobank expect chicken prices and margins to climb this spring and summer, yielding a very favorable year for the US chicken industry.