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Net effect of PED virus on US porkproduction: 6 to 7 percent decline in 2014

Release Date: Wednesday, March 26, 2014

Porcine epidemic diarrhea (PED) virus is expected to havesignificant impacts on North American swine production and slaughter through2015, according to a new report published by Rabobank.

In the report, published by the bank's Food & AgribusinessResearch (FAR) and Advisory team, Rabobank says that PED virus has to dateimpacted about 60 percent of the U.S. breeding herd, 28 percent of the Mexicanherd, and is beginning to develop in Canada. If PED virus spreads in Canadaand Mexico at the pace seenin the U.S.,Rabobank says that North American hog slaughter could decline by nearly 18.5million hogs over 2014 and 2015, or 12.5 percent relative to 2013 levels.  Overall U.S. pork production is anticipatedto decline 6 to 7 percent in 2014, the most in more than 30 years.

In the U.S.,we see the outbreak of PEDv causing a significant shortfall in the availabilityof market hogs in 2014 - to the tune of 12.5 million hogs or 11 percent ofannual slaughter," explained Rabobank Analyst William Sawyer. "Giventhe ever-rising number of PEDv cases reported, coupled with a six-month averagelifecycle, the months of August through October are likely to be the tightestfor processors, where slaughter could decline by 15-25 percent against 2013levels. If the virus continues at its current rate, the shortfall to U.S. slaughterin 2014 could be as much as 15 million hogs."

The specific origin of PED virus in the U.S.has not been definitively identified but comparison of strains of PED virus inthe U.S. have indicated aclose relationship with strains in China. What is clear is that oncethe virus enters a region, it can spread quite easily and rapidly throughout anentire population. The most common avenue is on livestock and farm equipmentthat come into contact with hogs positive with PED virus or their feces.

In regard to productivity, 2014 will be a story of "the havesand have-nots" where hog producers who experienced mild cases of PEDvirus, or none at all, could realize margins of more than $60 per head, thehighest calendar year average seen in Rabobank's 40-year record. Conversely,hog producers who have had difficulty eradicating the virus could suffersignificant losses as the pain of the high fixed costs of modern hog productioncompounds prolonged periods of weak productivity.

Packers for the year to date have been in a "haves"position as the fear of possible stockouts have pushed pork cutout prices upmuch 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 pricescontinue to climb, testing pork demand, and hog shortages force packers to idleplants.