As African swine fever continues to ravage China's hog herd, the impact may be far worse than Beijing is conceding. The crisis could lead to significant shortages of the country's staple meat and drive up global prices of protein, experts said. The situation also increasing fear among U.S. pork producers of spreading contagion.
The June lean hog futures contract on the Chicago Mercantile Exchange is up more than 50% in the past month as speculators wager that China's outbreak and apparent progress in U.S.-China trade talks will increase U.S. pork demand. China consumes about 28% of the world's meat, including 49% of pork, so it's a significant factor in the world market.
"Assuming China's tariffs on U.S. pork are reduced in the not-so-distant future, U.S. pork exports could pick up considerably," according to David Maloni, executive vice president of analytics at ArrowStream, a Chicago commodity researcher for the restaurant industry. He also wrote in a newsletter Tuesday, "Longer term we are concerned that U.S. chicken and beef exports could rise as well."
On Tuesday, China's agricultural minister said African swine fever is now "under effective control" and the number of cases is slowing down. The government official also was quoted by state media as insisting the production of live pigs and pork supplies is generally stable.
But not everyone agrees with that assessment and some suggest Beijing maybe under reporting the severity of the killer disease's impact on pork supplies, to save face or perhaps maintain a position of strength during negotiations to resolve the U.S.-China trade war.
"What our people there in China find is a far different story where the disease is continuing to spread," said Arlan Suderman, chief commodities economist with INTL FCStone in Kansas City, Mo. "China just doesn't want the rest of the world to know what the situation is."
The economist termed it "a very dire situation" and estimates hog feeding in China has fallen at least 40% and in some larger swine producing regions plummeted more than 50% in response to the disease. He said the decline is directly attributable to infected pigs dying and producers afraid of the disease and liquidating herds to salvage some value.
"If we're down 40%, that would mean on an annualized basis that they've lost more pork production capacity than what we produce in all of North and South America together on an annual basis," said Suderman.
At least 122 cases of African swine fever have been reported in China in both its domestic pigs and wild boars since the first case was confirmed last August and the incurable disease has spread to other parts of Asia, including Vietnam where it accounts for about three-quarters of the total meat diet.
There is fear the highly contagious and deadly virus could spread beyond Asia and reach the U.S.
On Wednesday, the National Pork Producers Council announced it would cancel its 2019 World Pork Expo in Des Moines "out of an abundance of caution" given the current situation. The annual event in Iowa usually draws about 30,000 people and includes hundreds of pigs for judging contests.
The U.S. government recently announced increased measures to prevent the disease from entering the domestic livestock supply, including a renewed focus on "strict on-farm biosecurity" measures and other steps.
In Beijing, meantime, the government has indicated the number of hogs culled to help prevent the spread of African swine fever is about one million, or a fraction of the China's roughly 700 million pigs.
Regardless, Suderman estimates China will ramp up poultry production about 8% to try to offset some of the lost pork supplies but still be left with a net deficit of about 16.2 million metric tons of meat that they will need to get from suppliers on the world market to maintain their current food supply. To put it in perspective, that is about six times the amount of pork the U.S. exported in 2018 to all markets.
Another estimate from a report recently published by a Chinese agriculture consulting firm shows the deficit in pork supplies will be less than half of the amount projected by INTL FCStone.
According to Shanghai-based consultant JCI, China's pork production is forecast to fall nearly 16%, or 8.5 million metric tons in 2019. The Chinese firm sees a "pork supply-demand gap" of as much as 7 million metric tons this year, even compensating for other proteins such as chicken, beef and fish.
China is believed to have a large reserve of pork supplies and significant supplies in cold storage. Still, Suderman said the Chinese could start seeing product shortages in final quarter of 2019 and "a more significant problem in 2020."
Last year, China slapped retaliatory tariffs on American pork that resulted in the import taxes of about 70%, or about five times higher than other major global suppliers such as the European Union, Brazil and Canada.
"Right now it's hard to say how much China's need for imports will increase due to African swine fever," said Joe Schuele, a spokesperson with the U.S. Meat Export Federation, a trade group. "The consensus is that it will, but we're not sure to what degree it will affect China's production."