PED virus to cause 2-year shortfall in hog markets, report says
Net effect of PED virus on US pork production: 6 to 7 percent decline in 2014
In the report, published by the bank's Food & Agribusiness Research (FAR) and Advisory team, Rabobank says that PED virus has to date impacted about 60 percent of the U.S. breeding herd, 28 percent of the Mexican herd, and is beginning to develop in Canada. If PED virus spreads in Canada and Mexico at the pace seen in the U.S., Rabobank says that North American hog slaughter could decline by nearly 18.5 million hogs over 2014 and 2015, or 12.5 percent relative to 2013 levels. Overall U.S. pork production is anticipated to decline 6 to 7 percent in 2014, the most in more than 30 years.
"In the U.S., 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 percent 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 percent against 2013 levels. If the virus continues at its current rate, the shortfall to U.S. slaughter in 2014 could be as much as 15 million hogs."
The specific origin of PED virus in the U.S. has not been definitively identified but comparison of strains of PED virus in the U.S. 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 PED virus 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 PED virus, 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.