By Rob Wolter & Ramon Paxton
African Swine Fever (ASF) strikes fear into the hearts of pig producers around the world. Have you thought about ASF? Are you protected?
What is ASF and where is it found?
According to the Food and Agriculture Organization of the United Nations (FAO), ASF is a highly contagious and deadly viral disease that affects domestic and wild pigs of all ages and can spread rapidly. It cannot be transmitted from pigs to humans, so it’s not a threat to human health, but it’s a significant threat to producers, their communities and the economies where it is found.*
ASF has been found in countries around the world. It was first identified in sub-Saharan Africa and more recently has spread to China, Mongolia, Cambodia, the Philippines, Myanmar, Korea and Vietnam, as well as part of the European Union. At this point, the disease has not been found in the U.S.
Why does ASF matter?
ASF has wreaked havoc on the pork industry in the countries where it has been found, but that’s just the pebble in the pond. This type of event ripples through many other areas as well – consider the following:
- Shortages and pricing – There have been dramatic shortages of pork and prices have tripled in Additionally, pork prices in Europe, Brazil and the U.S. have been increasing. Finally, growing supplies and recent trade battles have affected meat cut prices, which may mean prices have been discounted compared to their potential.
- Exposure – Your exposure to meat cuts and any associated animal byproducts could be impacted.
- Supply and demand – Growing supplies and recent trade battles have affected meat cut prices, which may mean prices have been discounted compared to their potential.
- Expansion and demand growth in other categories – There has been massive expansion in poultry and fish production and consumption, as well as a dramatic increase in beef demand as it is viewed as a healthier option, especially in the middle and upper classes.
- Animal feed – Fewer pigs need less feed, which translates into fewer bushels of corn and soybeans needed, both domestic and imported.
- Local economies – This disease has forced producers to kill millions of pigs, which means they have lost a potentially large income source, and in turn have less to spend to support their local economies. Because pork is a staple, price inflation is spilling over as a driver of overall inflation of +3% in China.
- Broad scale – The fact that ASF has forced producers to cull their herds affects the number of pigs available, but it doesn’t necessarily change the consumer demand. The countries with ASF then need to decide how to address the issue of demand without the supplies they were expecting to have. That could mean increased imports or rising prices. Those actions have their own ripples.
- Threat level – Mark Schipp, president of The World Organization of Animal Health (OIE), said ASF is the “biggest threat” to commercial pig production in history and could result in the loss of one-quarter of the world’s pig population.*
How are you protected?
Having a risk management strategy is important in the livestock space. Overall, the meat sector is behind on hedging and risk transfer, especially taking into account the current unprecedented decline in total protein supplies. There may be more volume in other areas of agricultural commodity hedging, but there are significant opportunities with livestock that should be considered.
From a producer perspective, do you know your options? Have you done analysis on your margins versus your cost of goods? If you sit in the consumer space, what are you seeing around volatility and optionality? In either case, Cargill Risk Management is here to help. We offer over-the-counter (OTC) hedging solutions that provide flexibility for our customers’ risk management needs. Are you looking for a meat swap? We can help you create that. We listen and support our customers in finding the solutions that will best suit their needs.
Think about your exposure and where you can offset that risk. Then, call us to help you put together a risk management strategy that will help your business move forward.
*Sources: FAO http://www.fao.org/news/story/en/item/1204563/icode/; Feed Strategy, https://www.wattglobalmedia.com/publications/feed-strategy/
Move that closing price two standard deviations, using an implied volatility or a 50-day published historical volatility, to a 95 percent degree of confidence.
