Rabobank analyst sizes up impacts of ASF in China
— U.S./China trade policy update:
- Uncertainty over WSJ report of next talks in Beijing and Washington. That additional talks between top U.S. and Chinese trade officials are clear, but the Trump administration has still not officially confirmed a Wall Street Journal report that the two sides will meet in Beijing the week of April 29, with the teams meeting in the U.S. the following week. The push is apparently on to get a final accord announced by the end of May or early June, but past trade agreement “goals” have frequently seen timelines extended.
- Bloomberg also reported the Lighthizer/Mnuchin trip to China the week of April 29, with a Washington visit by China's Liu the following week, with officials signaling they want to announce a deal has been reached during that visit, with a goal of a signing summit probably in late May or early June.
- China comments. New progress has been made on the text of a trade deal between China and the US, according to Commerce Ministry spokesman Gao Feng, but work remains to be done. Gao made the remarks at a weekly briefing in Beijing.
- Reuters: Pillsbury denied visa to attend event in China. Former U.S. Defense official and Senior Fellow at the Hudson Institute Michael Pillsbury told Reuters his visa to attend a conference in China April 14 was not approved by the Chinese Embassy in the U.S. He said he had submitted the application March 22. "So, is this a subtle message of some kind, or just a mistake," Pillsbury told Reuters, adding he was still "waiting patiently for my visa to be issued." A spokesman for China's Foreign Ministry in Beijing, Lu Kang, said he needed to look into the situation. Pillsbury speculated the action could have been a retaliatory move by China for U.S. visa restrictions on some Chinese academics that was reported by the New York Times.
- Huawei’s chief executive promised German officials a “no-spy” agreement as part of its effort to be considered for contracts to build the country’s 5G wireless networks. The comments, reported in Wirtschaftswoche, a magazine, are striking as the Chinese telecoms-equipment-maker has said it does not do the bidding of the Chinese state, or install “back doors” for spies to exploit.
— EU threatens U.S. farm goods in latest trade policy skirmish. The European Commission released a list of U.S. exports worth more than $22 billion that it wants to hit with retaliatory tariffs. A wide range of farm goods are considered targets. Last week the Trump administration released its own list of European goods to hit with levies. The spat stems from a 14-year-old dispute over subsidies given to rival aerospace firms Boeing and Airbus.
— Chinese pork prices could rise 70% this year and reach record-high levels in the second half of 2019, according to a Chinese agriculture official cited in a South China Morning Post report. Financial firm Rabobank this week projected that up to 200 million Chinese pigs could be culled as African swine fever spreads in the country.
— ASF was the topic of a panel at the Pork Management Conference in Nashville, Tennessee. The following are key comments from three of the panel participants:
Christine McCracken, Rabobank agricultural economist
- Since its discovery in August 2018, ASF has spread to every province in mainland China.
- Nearly 50% of the world’s pigs are in China, with half of these pigs in backyard operations.
- China produces 98% of its pork; imports 2%. But that 2% equals 20% of global pork trade of 8 MMT.
- ASF is affecting an estimated 150-200 million pigs with an expected 30% loss in pork production of around 16 MMT by year-end. (Note: McCracken’s presentation noted an estimated 130-150 million pigs, but in a report released by her this week, the estimate was 150-200 million pigs.)
- Herd losses (including breeding stock) are above 35%.
- Production losses in Vietnam are over 15%.
- Losses may continue to move higher.
- 2019 ASF losses are estimated at 14% of world pork supply.
- ASF losses leave China 10% short in total 2019 animal protein supply.
- Pork production losses cannot easily be replaced by other proteins (chicken, duck, seafood, beef, and sheepmeat), nor will larger imports be able to fully offset the loss.
- How some of the gap, but not all of it, can be narrowed: More domestic production of alternative proteins, imports and demand destruction (less pork consumption).
- China’s domestic protein industry can add 4 MMT.
- Other protein imports by China could add 1.4 MMT — Poultry, Beef, Lamb, Seafood.
- Additional pork imports by China could add 3% or 1.5 MMT.
- The EU, U.S. and Brazil appear best positioned to respond to increased import demand for pork and other animal proteins into China and Southeast Asia.
- While the U.S. is a major poultry producer and exporter, it cannot export to China due to a ban associated with avian influenza imposed in 2015. This is one of the topics in ongoing U.S./China trade talks.
- Challenges to expanding pork exports: Structural limitations (infrastructure will not support a dramatic increase in pork imports); ractopamine ban (around 40% of U.S. pork supply is sufficient to meet needs; current indications suggest China will not lift the racto-ban); trade dispute with China (the 62% Chinese tariffs are not currently a limitation as pork imports are going into strategic reserves which do not face tariffs).
- If the EU increases pork exports to China, which EU market will not get product? This suggests EU traditional customers likely will be protected.
- Potential for outbreaks to restrict exports from significant pork-producing countries, such as Germany, cannot be ruled out. Such restrictions would complicate the trade response to ASF in China and Southeast Asia.
- U.S. exporters may give up low-margin business, but where?
- Bottom line: The world is unable to fill China’s protein supply gap.
- China’s herd-rebuilding will be slow and take years. Producers remain cautious given the risk of recontamination and are focused on improving biosecurity at remaining operations. Chinese govt’s support for rebuilding cannot convince producers who will in the end carry the bulk of the risk.
- Key market issues include the possibility there will be demand destruction of pork in China relative to pork prices and consumer fears.
Dr. Paul Davis, American Feed Industry Association (AFIA)
- If ASF were to be found in U.S., would have $8 billion impact on industry first year, but other sector-related impacts such as potential interruption in ingredient supplies. Potential panic from consumers could affect animal protein industry. Increased shipping/hold times.
- Producers should ask questions about origin of feed and feed ingredients.
- The U.S. feed industry is being urged to stand together to keep ASF out of the U.S.
- Top priority for pork industry groups: Communication, collaboration and more research needed.
- Some preventive activities include voluntary holding times of imported ingredients, CBP activities including beagles… Focus on ports of entry, cruise ships, international travelers and foreign mail.
- Why not follow Canada’s lead… works under assumption that origin = contamination, but there is potential for trade retaliation.
- Holding times and import questionnaires could give false hope. Seems the U.S. wants science-based regulation.
Larry Rueff, Swine Veterinary Services
- Spread of disease has been slower than expected, but the spread of ASF within China is not going to go away, in part due to animal density levels.
- Vaccines will be hard to make.
- Key: Will Chinese consumers change their diet?
- China will want to diversity their imports of proteins for food security purposes.
- Chinese do not like frozen pork, but they may have no choice.
Panelists commented on questions from the audience:
* U.S. firms that have people in China or have consultants go to China ask, “Where are they going; hold them to very high standards.”
* Imported vitamins from China should be avoided.
* U.S. producers should not allow anyone from China or who have visited China on their farms.
— Other items of note:
Barr to hold briefing ahead of Mueller report release. Attorney General William Barr and Deputy Attorney General Rod Rosenstein will hold a press briefing on the Mueller report at 8:30 a.m. CT. Congress will receive the report between 10 a.m. and 11 a.m. CT, officials said. Meanwhile, Justice Department officials have repeatedly discussed the report’s conclusions with White House lawyers, according to media reports, aiding the president’s legal team as it prepares a rebuttal.
North Korea said it had test-fired a new type of “tactical guided weapon.” There was no evidence that the test involved a nuclear detonation or an intercontinental ballistic missile. North Korea leader Kim Jung Un recently said that he would give the U.S. until the end of the year to come up with proposals that would lift sanctions, an implicit warning that North Korea might resume nuclear and intercontinental missile testing. It was the first time the regime has fired a missile since November 2017. The weapons test is “a low-level provocation tactic of raising the stakes and playing hard to get for short-term gains,” one Korea expert said.
Cain won't withdraw as Fed pick. Herman Cain said he has no intention of withdrawing his name from consideration for a seat on the Fed board, despite apparently lacking enough Senate support to be confirmed if President Trump nominates him.
A new denim collection with focus on farm conservation practices. Wrangler is working with cotton growers from Alabama, Georgia, North Carolina, Tennessee and Texas to create a new denim collection with a focus on farm conservation practices. “The sustainable cotton used for each state’s jean is fully traceable to a family farm in that state,” the company says. Link to Forbes article.
— Markets: The Dow weakened 3.12 points, 0.01%, at 16,449.54. The Nasdaq eased 4.15 points, 0.05%, at 7,996.08. The S&P 500 lost 6.61 points, 0.23%, at 2,900.45.
Immigration propels population growth. Fourteen states and the District of Columbia relied on immigration for more than half of their growth last fiscal year, according to new census data. The figures show how new arrivals are shaping the nation as the population ages and the birthrate slows.
Beige Book notes concerns about Midwest flooding impacts. While a few Fed districts reported strengthening economic growth, the Fed's Beige Book, released Wednesday, characterizes the situation as one of "slight to moderate" growth in March and early April. And the outlook was listed as showing "little change" compared with the prior Beige Book update, "with those expecting slight to modest growth in the months ahead."
Consumer spending continued its mixed performance, according to the report, but with "sluggish sales for both general retailers and auto dealers." Tourism was one of the bright spots in the report.
As for manufacturing, there were favorable views but "contacts in many Districts noted trade-related uncertainty.
Those districts reporting on the agricultural situation said it "remained weak, with contacts expressing concerns over the impact of current and future rainfall and flooding."
The labor market, as expected, was seen strong with modest or moderate growth registered in most districts. "Labor markets remained tight, restraining the rate of growth," the report said.
That tight labor market continues to put upward pressure on wages. "Many Districts reported that firms have offered perks such as bonuses and expanded benefits packages in order to attract and retain employees," the report observed, with "most" districts labeling wage growth as "moderate."
Inflation also remains an as-expected situation, with prices up "modestly" since the prior Beige Book update. While there have been some higher costs seen, the report pointed out that the "ability of firms to pass increased input costs on to consumers was mixed."