Trade Resources Industry Views In a Quarterly Pork Report,The PEDv Continues to Weigh on Potential Herd Expansion

In a Quarterly Pork Report,The PEDv Continues to Weigh on Potential Herd Expansion

Though hog farmers are starting to see decent profits, the continued presence of a major disease continues to keep a lid on profits and herd expansion, a report released this week shows.

In a quarterly pork report, Rabobank livestock analyst Albert Vernooij says the Porcine Epidemic Diarrhea virus (PEDv) continues to weigh on potential herd expansion. After initially causing higher litter mortality and essentially trimming herd numbers that way first, the fact it's still as prevalent as it is now has producers leery of expanding until some progress is made in treatment and control of the disease.

"PEDv began showing up in the U.S. hog herd in late April 2013 and is now widespread, with high litter mortality in every major hog production region of the U.S., which could impact 2014 pork production by 5%," Vernooij says. "In the USDA Hogs and Pigs report, published December 27, inventories of breeding hogs and litter rates confirmed the impact of PEDv that many market participants had feared. Despite the outlook for strong profit margins, the inventory of hogs kept for breeding was down 1.3% year-over-year, reflecting producers' hesitation to expand in the midst of the outbreak. Newborn piglets are highly susceptible to the effects of PEDv. This was evident in the number of pigs per litter which was flat last year, the slowest growth rate in a decade."

But, PEDv's not going to derail profitability in the next year, Vernooij adds. The analyst expects per-head profits of around $33 through the next 11 months, the "best annual results for the industry in more than 30 years." That's largely based on lower feed costs and generally lower herd numbers.

"This rosy outlook is a function of significantly lower feed costs, primarily corn, and strong hog prices as the market sees the outbreak of PEDv constraining supply growth in 2014," Vernooij says. "The futures market for 2014 implies a decline in prices of corn and soymeal of 27% and 15% respectively, as global grain inventories rebuild following the robust harvests in the Americas. The USDA forecasts as much as a 6% decline in hog prices in 2014, which in our view underestimates the industry's limited ability to increase supply in the midst of PEDv."

There are a couple of factors beyond U.S. borders that will influence the pork market in the next 11 months; exports to a few key nations will continue to be hampered by trade restrictions and domestic policy, Vernooij says.

"Supply is likely to be further constrained by the effects of new Country of Origin Labelling (COOL) requirements, which have significantly slowed the imports of Canadian hogs in recent months," he says. "In 2013, U.S. pork exports were hampered by ractopamine bans implemented by China and Russia and a slowdown in volume to Korea as it continues to rebuild its domestic herd. Looking to 2014, while the U.S. is still unable to ship pork to Russia, the industry has resolved China's ractopamine requirement and exports there have been stablilized, ractopamine-free. Korea is expected to continue to rebuild its domestic production but the removal of import duties in 2014 for the U.S. may help trade volume finally stabilize.

Source: http://www.agriculture.com/news/livestock/pk-margins-growing-despite-pedv-nerves_3-ar41519
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Pork Margins Growing Despite PEDv Nerves