It goes without saying that what affects livestock consumption deeply affects the feed industry. So it is with the H1N1 virus that hurt pork consumption in key markets and feed sales as well.
With the flu season just hitting in the Northern Hemisphere, the likely severity of H1N1 and its impact on the hog industry was a hot topic at one of the world's top U.S. regional veterinary conferences.
The "pretty good news" thus far is that with the flu season just ending in the Southern Hemisphere, the percentage of people contracting flues "is pretty similar to an average year," Dr. Peter Davies, of the University of Minnesota, said at the 2009 Allen D. Leman Swine Conference. He added that it's too early to see how the disease plays out in North America and elsewhere this fall and winter, but even where the disease has hit fairly hard, there have been a "small proportion" of fatal cases.
But that said, the pork industry, and in turn, the feed industry, has been hit hard by the disease. While U.S. consumption of pork has been affected little by the outbreak of H1N1 this spring in Mexico, the shutdown of key export markets such as China and Russia has hit producers hard, and in turn, feed companies.
It’s not the only reason why U.S. producers continued to lose money, with other key factors being the global recession and the fact that supply needs to be brought into line with demand. But H1N1 has played an important role in continuing losses of late that have been $25 to $30 per pig for the last 24 months, according to a U.S. analysis. Part of the losses are due to the loss of key export markets such as China, and as a result, the U.S. swine herd will need to be reduced more than if it were business as usual.
And that, of course, means a reduction in feed sales beyond what would occur were it strictly a case of lower prices.
Tim Loula, a partner at the St. Peter, Minn., Swine Veterinary Center, said he expects little profitability for the next 18 months. "I haven't seen it this bad in 32 years of practice," he said, adding that there are no good answers on how producers can start turning a profit.
“Origin is unknown”
Dr. Kristien Van Reeth, a global expert on influenza, and on the faculty of Ghent University in Belgium, said the new and novel form of H1N1's "origin is unknown," and while pigs are frequently a platform for a reassortment of viruses, there is no proof that this occurred with this novel form. "There is no evidence for a role of pigs in spreading the novel H1N1 in humans," she said. Interesting, she said, is that the disease seems to be hitting populations younger than 25 harder that those older, leading her to suspect that older populations have immunity from previous flu outbreaks.
Van Reeth continued that the accusation made by some that the cause of H1N1 is due to a large and confined hog production system is nothing more than "anti-agriculture propaganda." Old fashioned swine operations are more vulnerable to influenzas than large-scale operations, she said.
One of the problems for the public is that H1N1 was called a pandemic, but few people know what the word actually means. "A pandemic only means worldwide occurrence," said Dr. Marie Gramer of the University of Minnesota. She added that it may not be the case that influenza is any worse in the 21st Century, "but we are looking more for it. The more you look, the more you find." On June 11, H1N1 was called a pandemic. "We are not post peak yet," she said.” It is truly a unique virus.”
In the view of Christopher Hurt, a Purdue University economist, hog producers may be seeing the first signs of the financial dawn. However, before profits are achieved in the spring of 2010, there will be another six months of losses, but the magnitude of those losses should decline over time, he says. That, of course, is good news for the feed industry.
On the supply side, the latest Hogs and Pigs report revealed slightly larger reductions in the herd than had been expected.
But improving demand will likely have more positive implications for hog prices than reduced supply. Many economists believe the recession is over, Hurt notes.
Exports are expected to strengthen as well.
Winter prices are expected to rise to the low $40s, and then move still higher into the mid-$40s for second quarter averages. Next summer’s prices are expected to rise into the high $40s for an average and the low $50s for weekly highs.
For all of 2010, current estimates are for about $3 per head of profits versus losses of $22 per head in 2009 and $17 of loss in 2007.
Just as the world economic slowdown helped plunge the animal industries into recession more quickly than the crops sector, the world economic recovery may help lift the animal industries out of recession.