Poultry Industry, Unaffected Pork Producers are PEDv Winners

Poultry Industry, Unaffected Pork Producers are PEDv Winners

Net Effect of PEDv on U.S. pork production will be a 6% to 7% projected decline in 2014, but consumers may revert to poultry on higher prices

The Porcine Epidemic Diarrhea virus has resulted in thousands of piglet deaths around the U.S., raising questions of future hog availability.

According to a new report released Tuesday by Rabobank's Food and Agribusiness Research and Advisory team, the concern is warranted – the disease has impacted about 60% of the U.S. breeding herd, 28% of the Mexican herd, and is beginning to develop in Canada.

If PEDv spreads in Canada and Mexico at the pace seen in the U.S., Rabobank's report estimates that North American hog slaughter could decline by nearly 18.5 million hogs over 2014 and 2014, or 12.5% relative to 2013 levels.

Net Effect of PEDv on U.S. pork production will be a 6% to 7% projected decline in 2014, but consumers may revert to poultry on higher prices

Overall, U.S. pork production is anticipated to decline 6% to 7% in 2014 – the most in more than 30 years.

Related: Canada Reports Results of Feed Testing for PEDv

"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% of annual slaughter," Rabobank Analyst William Sawyer explained in a statement. "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% 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," he said.

Profits strong for unaffected producers
Hog producers who experienced mild cases of PEDv, or none at all, could realize margins of more than $60 per head, says Rabobank, the highest calendar year average seen in the bank's 40-year record. 

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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.

Related: Porcine Epidemic Diarrhea Affects All Hog Farms

For the year to date, 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.

Poultry industry will benefit
The real winner in the PEDv situation, however, will be the U.S. poultry industry, Rabobank says. U.S. beef production is forecast to decline by nearly 6% in 2014 and, coupled with Rabobank's estimate of 6% to 7% less pork production, this implies an exceptional opportunity for the U.S. chicken industry as the protein of last resort.

U.S. chicken production would have to rise by 8% to 9% to offset the shortfall from beef and pork, but a limited breeder flock and continued high demand for fertilized eggs from Mexico will keep supply growth restrained.

As a result, Rabobank expect chicken prices and margins to climb this spring and summer, yielding a very favorable year for the U.S. chicken industry.

Source: Rabobank

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