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Thursday April 26, 2018

Pig virus a threat to pork supplies?

Nebraska is now the most recent state to be hit by a new pig virus known as Porcine Epidemic Diarrhea. That now brings the total number of states affected to 20, USDA announced this month. The virus, which kills baby pigs in large numbers on affected farms, had never been reported in North America until it was discovered in the United States in May, fueling widespread speculation it will cause a deep decline in pork supplies next spring and summer, when the losses in young pigs will be first felt. For instance:

  • "Pig virus migrates to US, threatens pork prices," the Associated Press breathlessly headlines its July 7 story.
  • "Spreading Pig Virus May Curb U.S. Pork Supply, Veterinarians Say," according to Bloomberg News.
  • "Porcine Epidemic Diarrhea Virus Migrates To U.S., Threatens Pork Prices," Huffington Post claims.

But are the predictions true?

The presence of the virus, known as Porcine Epidemic Diarrhea, or PED, in at least five of the nation's top pork-producing states does have the pork industry nervous over its potential impact. The U.S. Centers for Disease Control reports that after it was first found in China three years, the virus spread rapidly through southern China, eventually killing more than a million young pigs there. The virus now being found in U.S. hog farms is nearly identical genetically to the Chinese one, and it is displaying the same tendency to be highly deadly to very young piglets. It often kills from half to all the baby pigs on an infected farm.

The virus is not believed to pose any infection risk to other animals or to humans, so pork from PED-infected pigs should be safe to eat. However, the potential for large-scale animal losses does beg the question: Will it lead to widespread pork shortages?

Not likely, for several reasons:

  • Food estimates of the total number of piglets killed by the disease so far are hard to pin down. Because PED is not a disease that must be reported by law, any estimate you read is likely to have been pulled out of the air by multiplying the number of reportedly affected farms by an assumed number of deaths per farm. Chances are, the mainstream media have overstated the losses.
  • Likely the most reliable estimates have come from Steve Meyer, president of Paragon Economics, an Iowa market consulting firm. Meyer predicts the overall impact of PED has the realistic potential to fall in the range of about 4 million pigs over the last seven months. He reports that industry observers now believe roughly 1.5 million sows are now infected. Using some estimates based on anecdotal evidence, about 2.7 pigs will be lost for every sow on the infected farms, leading to his 4 million head loss over seven months. That decrease in supply of pigs has led at least one of the large pork integrators to hold the pigs it does have to heavier weights before selling them, in order to try to make up for losses in numbers of pigs with higher poundage of pork. He believes it is also contributing to record high market prices for young pigs to feed to harvest weights. Where the losses will stop is the great unknown at this point. "The consensus at a major pork producer meeting was that the disease may not stop until it has infected the entire U.S. herd," Meyer writes. The question then remains how long it will take before sow herds beging to build sufficient natural immunity to the disease in order to prevent any greater nationwide losses.
  • But even if the worst estimates are true, it's important to keep in mind they so far would not eclipse normal, market-driven swings in supply from year to year that can easily run in the 1.5 percent to 3 percent range. The old rule-of-thumb was that for each 1 percent drop in supply, price (for live hogs) should rise about 3 percent. So although the exact price impact remains to be seen, it's obvious losses would have to be substantially larger than they probably are at this point in order to make for devastating increases in pork price. Meyer does believe an anticipated reduction in supply of young pigs is now buying bid into their market price. However, his loss estimates are likely to be at least partially offset by herd expansion, as farmers begin increasing their inventory of breeding animals to take advantage of expected decreases in feed costs next year. Bottom line: Some price impact will be felt, but it's likely to be minimal at the wholesale level.
  • American pork farmers are no stranger to new and even exotic diseases like PED that eat into their supply of marketable animals, and history has yet to witness a significant pork shortage related to them. When the last "mystery disease" jumped borders to infect the U.S. pig herd in the late 1980s, it went on to become endemic in the nation's herd and to this day still costs the average pig farmer an estimated $115 in lost productivity annually for every female the farm breeds. That disease has been estimated to cost U.S. farmers nearly 10 million pigs and 2.5 billion pounds of lost pork every year. That supply loss has no doubt led to some increase in pork prices over the last three decades, yet wholesale pork has remained affordable over that frame in comparison to other meats.
  • It's likely that although the PED can be devastating to individual farms, on the larger scale it likely is a relatively "containable" disease. Today's farms use numerous methods to prevent diseases like PED from entering their farms and to contain them should they do so. Any disease like PED would face a difficult time turning into a widespread epidemic on today's modern farms. Those methods include:
    • Controlling entry of people, supplies, feed ingredients, food items, and anything else that could carry infective disease.
    • Thoroughly cleaning and disinfecting anything coming onto the farm.
    • Requiring visitors to prove they have not been on another farm or near other hogs for a specific period of time.
    • Taking care when disposing of dead stock to prevent disease spread.
    • Isolating and quarantining newly arriving animals and testing them for diseases that could infect the farm.
    • Requiring visitors and workers to shower and to change boots and clothes every time they enter barns.

Relax. USDA says there's plenty of turkey.

"Butterball's Turkey Shortage Might Ruin Your Thanksgiving," the Huffington Post breathlessly warned online readers a couple of weeks ago. The story, apparently spurred by a press release from a small New England grocery chain, made the Internet rounds, claiming that Butterball, with a 20 percent share of the U.S. turkey market, had halved its nationwide shipments of fresh turkeys bigger than 16 pounds because of production issues that had delayed their growth.

The National Turkey Federation cautioned against panic, noting that all but 20 percent of U.S. turkey sales are frozen, not fresh. Even Butterball said fresh turkey accounts for only about 15 percent of its stock. So what's the real turkey supply situation?

USDA reports turkey meat production in third-quarter 2013 was down 2.7 percent from a year earlier, at 1.44 billion pounds. The decrease in turkey production was due to a lower number of turkeys slaughtered--down 5 percent from a year ago--as average liveweights at slaughter were actually higher. This is the fourth quarter in a row where the number of birds slaughtered has been lower than in the same quarter a year earlier; however, the drop in the number of birds slaughtered was partially offset by gains in the average liveweight at slaughter to 29.9 pounds, 2.5 percent higher than a year earlier.

Turkey meat production in fourth-quarter 2013 is forecast at 1.48 billion pounds, 4 percent lower than a year earlier. Again most of this decrease is expected to come from a smaller number of turkeys slaughtered, with only a small gain in average liveweight at slaughter. Turkey meat production in 2014 is forecast to be 6 billion pounds, which would be an increase of 1.7 percent from the previous year. Production is expected to begin to expand in the second half of the year as turkey processors determine that falling feed costs more than offset lower prices and strong competition from the broiler industry in both the domestic and export markets.

Yet even with lower turkey meat production over the second and third quarters of this year, overall turkey stocks have remained above the previous year throughout 2013. Cold storage holdings of turkey products at the end of September were 542 million pounds, 4 percent higher than a year earlier. Stocks of turkey products totaled 216 million pounds at the end of the third quarter, almost identical to the previous year. The fact that stocks of turkey products are about even with the previous year is due partly to the lower overall turkey production and partly to continued relatively strong turkey product exports. For 2014, the quarterly ending stocks forecasts are expected to be slightly higher throughout the year. With higher stocks of whole birds, there has been downward pressure on whole turkey prices. Prices for whole frozen hen turkeys at the wholesale level averaged $1 per pound in third-quarter 2013, down from $1.08 per pound in third-quarter 2012. Whole frozen hen prices are expected to average $1.01-$1.05 per pound in fourth-quarter 2013, down about 3 cents from the $1.06 per pound average in fourth-quarter 2012. The quarterly price forecasts for frozen whole hens in 2014 are expected to be very-close-to-slightly-lower than the levels seen in 2013.

Where will beef prices go?

Following deep herd cuts spurred by high feed costs due to drought-induced shortages, U.S. beef production is dropping to its lowest point in 21 years. U.S. beef production is predicted to drop almost 5 percent next year, to 24.1 billion pounds. That drop, for the fourth in a row now, should make the U.S. cow herd its smallest since at least 1973.

Yet with retail ground-beef prices in June up 13 percent from the same time last year, wholesale beef prices dropped 12 percent since reaching a record $2.1137 a pound in late May, and cattle futures prices had dropped this year by about 6 percent. Since peaking in early May at $1.29 per pound the weekly price for cattle ready for slaughter has declined steadily to just above $1.20. Why the apparent disconnect between tightening supply and price?

U.S. beef cattle numbers on the decline

USDA reports nagging drought in the western and southwestern United States continues to motivate ranchers to send cows to slaughter, which temporarily elevates supply, despite the decreasing herd size. At the same time, feedlots continue to bring in heavy-weight cattle to put on feed for finishing. Both those scenarios contribute to increased short-term beef production during the late summer and fall, exerting downward pressure on fed cattle prices. From mid-March through at least the week ending June 22, weekly federally inspected cow slaughter has exceeded year-earlier levels, with both beef and dairy cows contributing to the increased year-over-year slaughter. At the same time, weekly feeder cattle sales volumes were generally above year-earlier levels, averaging close to 2 percent above year-earlier sales.

But it's not good news; the piper is eventually going to have to be paid. USDA reported the tide turned during June, as weekly sales volumes declined by more than 15 percent year-over-year. These developments foreshadow future declines in cow inventories, feeder cattle supplies, and, ultimately, total beef production.

Market watchers predict live cattle futures prices will reverse this year's decline, easily taking them back close to the record of $1.35 per pound reached in January, and are well on their way to a record for annual 2013. As wholesale beef prices, at $1.9028 a pound, reached their highest point in four weeks this week, University of Missouri ag economist Ron Plain was predicting they would easily exceed the peak $2.1137 they set in May in 2014.


Cheese and dairy update

The latest update from USDA on milk production, from August, showed dairy production was continuing to stay above year-ago levels, at 2.6 percent for the country as a whole. That's the fifth month in a row supply continues to increase. Yet even with the increase, other factors may be contributing to continued high or steady prices through October, analysts say. Although total dairy stocks are increasing, with butter stocks reaching a July 31st high fully 26.2 percent above last year's, they have fallen just over 8 percent during the past two months, coming into the strong selling season marked by Thanksgiving through Christmas. Its current price of $1.44 per pound is down 0.9 percent, but it was as low as $1.36 on August 20. Butter could reach $1.55 to $1.60 per pound.

Meanwhile, American cheese stocks as of July 31 were 5 percent more than last year's, although they likewise have shown the same pattern of dropping sharply in mid-August, only to recover in the last two months. Both cheddar barrel and block prices dropped in August futures trading, and some analysts have predicted rising prices into this month. The Chicago Mercantile Exchange block cheese price rose by 1.7 percent in the last month, ending at $1.81 per pound.

Both nonfat dry milk stocks and dry whey stocks are higher than a year ago, at 60.9 percent and 38.6 percent, respectively. Continuing demand strength driven by strong exports, expected to finish the year at a record high, will keep butter, cheese, nonfat dry milk and whey protein prices from falling through the end of the year. The latest export data, for July, show exports compared to a year ago were:

  • Up 22 percent for cheese
  • Up 61 percent for nonfat dry milk
  • Up 24 percent for whey
  • Up 167 percent for butter.


Photo courtesy Chicago Mercantile Exchange via Pennsylvania State University

Courtesy USDA via Pennsylvania State University

As is almost always the case for U.S. dairy production, the cost of feed will be an important factor for dairy prices beyond the holiday season. Anticipating lower feed prices, analysts believe large western dairies will respond by increasing their milk production, particularly in the face of demand assurances from the export market. If USDA’s crop projections for corn and soybeans prove true, feed staple prices should fall far below last year's, although they may be tempered by continuing high prices for hay, another necessary feed ingredient. However, because of the sensitivity milk production typically shows to small changes in cost expectations, a lot of uncertainty still remains as to future milk prices.

Photo: USDA

Photo: Flickr/USDAgov

Consider the paradox of industry pundits arguing over the legality of a Chinese company owning Nebraska farmland through its announced plans in May to purchase the nation's top pork producer, Smithfield, even as a delegation of Nebraska farmers leaves for a trade mission last week to promote additional sales of Nebraska farm products in Asia. The situation underscores a market change that's been growing for decades in the food chain: U.S. farmers today are producing relatively less and less for domestic retailers and more and more to please the palates of overseas consumers.

According to one estimate, Nebraska now sends fully half its annual wheat crop to buyers outside the country. Altogether, the state sells $5.3 billion in ag products outside the United States, which according to the state ag department creates around $7 in economic activity. Now, a new report by the U.S. Department of Agriculture quantifies the scope of that international impact on commodity markets, along with the predictions for the impact to come. Highlights of the 19-page report, which you can read here, include:

  • Although down slightly from earlier estimates, fiscal 2013 agricultural exports are forecast at a record $139.5 billion, up $3.7 billion above fiscal 2012 exports. The most-shipped commodities include grain and feeds, sugar and tropical products, oilseeds and their products, horticulture products, cotton, and livestock, poultry, and dairy. The trend prediction for grain and feed as well as sugar and tropical products is down slightly, oilseeds and products and cotton slightly up, and livestock and dairy unchanged from last quarter.

Exports value

  • Spurred by slow but steady world growth in 2013, trade growth, which in 2012 had dropped to 2 percent from a robust 7 percent in 2011, is slated to rise 3 percent in 2013. China and other emerging Asian economies, in pursuing policies of slower but more balanced growth, are becoming less export dependent, seeing more domestic demand driven by higher wages, rising consumer spending and housing growth. In addition, higher Western Hemispheric and African growth is expected to offset the impact of Europe's continued recession on developing economies' exports and provide further insurance against a worldwide slowdown. In particular, Brazil and Argentina are expected to see 3 percent growth in 2013, due to strong export growth, higher investment, and high commodity prices. Europe's recession and Japan's growth slowdown are the major factors preventing more rapid trade and world economic growth in 2013.
  • USDA estimates that over the past two decades, the share of all U.S. farm production that went to other countries, based on value, rose from 13 percent in 1990 to 18 percent in 2009 (latest figures available). The export share based on volume remained relatively stable at around 20 percent over the same period. Since 1990, the volume of U.S. agricultural exports has grown by 1.2 percent annually, on average. The corresponding export values increased 4.9 percent annually from 1990 to 2009; thus, export unit values of all farm products rose by about 3.75 percent annually during the past two decades. Export prices of nonfood products, which are largely bulk commodities, climbed 1.9 percent per year over the same period. Based on an annual export volume growth of 3 percent and 2 percent since 1990 for processed and unprocessed food exports, respectively, export unit values for processed foods increased 3.3 percent per year, on average, while unprocessed food prices climbed 1.8 percent per year. Thus, not only is the volume of processed food exports growing faster than unprocessed foods, but their prices are also increasing faster. Given that processed food exports are mostly high-value products and unprocessed foods are largely bulk commodities with lower per unit values, their relative growth patterns favor processed food exports.

Export share

  • Consumer spending for food and beverages in the United States over the past year has slowed from the preceding year. As in 2012, spending at food services (food away from home) is still stronger than spending for food consumed at home, although both were weaker during the last four quarters. Furthermore, prices of many key imported farm commodities—such as coffee, cocoa, sugar, rubber, and tropical vegetable oils—have fallen sharply from their 2012 levels. The downward effect of these domestic food spending developments and lower import prices on U.S. agricultural imports is partly offset by the relatively strong 3.2-percent growth in personal disposable income in the past year through March 2013. The net result is a $1.5-billion reduction in the fiscal 2013 import projection to $111 billion from the previous estimate of $112.5 billion. This import value still represents a 7-percent gain from 2012, when agricultural imports grew 9 percent.

Agriculture's balance of trade

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