Mecardo Analysis - Pigs might fly

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By Andrew Whitelaw | Source: USDA, Mecardo

Key points

· The current African Swine Fever outbreak is causing livestock prices to rise.

· The reduction in the pig herd in China will reduce demand for feed.

African Swine Fever is clearly having a major impact upon livestock markets. When you remove such a huge proportion of the world's pork herd – what is the potential impact on grain demand?

The Chinese demand for imported grain and oilseeds has risen steadily since 2000 from <20mmt to >100mmt in recent years. This demand has been driven by increasing wealth and the capacity to purchase red meat, which requires an expansion of feed demand.

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In order to provide a prediction of the likely impact upon the grain market, we have produced a model of Chinese domestic feed demand.

The production of pork meat is shown in figure 1. In the period 2000-05 China averaged 41.5mmt of pork production, but this has since increased to 54.8mmt in the period 2015-18, an increase of 32% .

By using an industry confirmed feed conversion ratio of 2.99kg of feed to 1kg of pork meat, an extrapolation of feed demand within the pork industry can be made.

The estimated reduction in pork production ranges from 10% to 50% due to culling of the herd. In figure 2, three scenarios are displayed with a reduction of 10%, 30% & 50%.

In this model estimated feed demand drop from 145mmt to 130mmt (10%), 101mmt (30%) and 72mmt (50%).

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What does this mean?

Chinese demand for feed grain is likely to be drastically reduced in the next 12-14 months. The biggest effect will be on soybean meal.

Regarding Australia, feed barley is the most likely to be impacted. As China is our largest export customer for barley the trade flows could be diminished.

The sudden reduction in feed demand over 12-24 months will result in increased inventories of domestic feed grains within China, which will potentially delay the requirement to increase feed imports post a pork herd recovery.

www.mecardo.com.au

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