Farming veteran warns China's pig crisis only getting worse

Pigs are kept in pens at a pig farm in Langfang, China, on April 1, 2019. Bloomberg photo by Gilles Sabrie.

In almost 40 years of analyzing commodity markets, Arlan Suderman says he has never witnessed an industry-jolting event as dramatic as the contagion spreading across China's hog farms.

The chief commodities economist at INTL FCStone Inc., the New York-based brokerage, has been warning clients about the impact of African swine fever, which he says is not only under-reported but will spur a restructure of China's entire farm industry and trigger an escalation in meat prices globally.

Most react in disbelief, Suderman said, but the situation is likely to worsen before it gets better.

"I have never encountered anything of the scope of African swine fever before," Suderman said in a phone interview from his office in Kansas City, where he's been fielding reports from a 10-strong team on the ground in China.

"This is going to be a big, world story."

The viral disease, first reported in China in August, has infected swine across the nation, as well as Mongolia, Vietnam and Cambodia. In China, which raises half the world's hogs, it's led to the death and destruction of millions of pigs, pushing up pork prices and causing reverberations across global grain, meat and financial markets, as well as the Chinese economy.

Latest forecasts point to a loss of swine this year equivalent to the European Union's annual supply.

Before joining FCStone, which specializes in commodities and dates it origins back almost 100 years to a door-to-door egg wholesaler, Suderman's career included 12 years focusing on crop production efficiency and marketing risk management at Kansas State University Extension Service and another 12 years working for Farm Progress Cos.

Suderman has his doubts about official data in China that shows a slowdown in the number of pigs affected since late 2018, with the government saying the disease is "under effective control."

He offers some of the most pessimistic estimates among industry insiders, informed by his colleagues in China. Just last week, they reported to him that African swine fever is "spreading just as badly as it has been, and is continuing to get worse," he said.

The US Department of Agriculture echoes Suderman's views, saying last month that hog farms are "vastly" under reporting outbreaks.

"Unofficial reports from China suggest far greater losses" than official data that shows culls are a fraction of China's total hog supply, the USDA said in a separate report earlier this month.

Three farmers in Hebei and Sichuan provinces declined to speak publicly about the hesitation to report infected pigs, citing the political sensitivity of the matter, but conceded that under reporting was rife in their areas.

Although hog farms are required to report outbreaks to their local governments, the infections may not be recorded by officials because of the subsequent cost of compensating farmers for the livestock losses, and fear of a political backlash for disclosing the widespread nature of the disease.

No one answered calls to the agricultural departments of Hebei and Sichuan provinces. A fax inquiry sent to China's agriculture ministry wasn't replied to.

The Chinese government says more than a million hogs have been culled since last August, compared to an inventory of about 400 million pigs.

Live pig stocks have fallen by about 19 per cent in March from a year ago, while the number of productive sow herds have fallen by 21 per cent, the country's agriculture ministry said on Tuesday. Spot pork prices in China are up about 14 percent since Aug. 1, when the disease was first reported.

Suderman estimates that China's nationwide pig feeding has dropped by more than 40 per cent, or about 300 million hogs in terms of annual production. That includes swine that have been killed by the virus as well as panicked farmers that have liquidated their herds and are avoiding restocking for fear of the disease, he said.

A survey by Bloomberg of 11 analysts and traders estimated an average decline of 30 per cent.

In Shandong, one of China's top breeding regions, official data show hog feeding was down 33 per cent in March compared to a year ago. Based on reports from FCStone's sources in China, including local feed suppliers, Suderman estimates it's down more than 50 per cent in the region and is continuing to deteriorate. The brokerage, which serves more than 20,000 customers in 130 countries, is receiving information from clients across China's pork supply chain, Suderman said.

There is no vaccine to prevent pigs from being infected and developing one could take years. It may be five to seven years before the disease stops spreading and farms replenish lost stocks, he said. That could result in an annualized pork deficit of 16.2 million tons, said Suderman -- an amount 1.3 times larger than what the US produced last year.

"That capacity isn't available anywhere in the world unless China is willing to pay a high enough price to bid that meat out of the hands of consumers in the US as well as the rest of the world," he said.

"I don't think there's enough refrigerated ocean freighters to fill that gap even if China is able to buy it."

- Bloomberg