They say that when life hands you lemons, you should make lemonade. And when it comes to the pork industry’s “lemon,” Porcine Epidemic Diarrhea virus (PEDv), producers are doing just that.
Earlier this year, Rabobank reported it expects PEDv to drop 2014 pork production by as much as 7 percent – the largest decline seen in at least 30 years. The virus has impacted approximately 60 percent of the U.S. breeding herd, and PEDv has killed an estimated 8 million pigs since it showed up in U.S. hog herds last April.
"In the United States, we see the outbreak of PEDv causing a significant shortfall in the availability of market hogs in 2014 – to the tune of 12.5 million hogs or 11 percent of annual slaughter," explains Rabobank Analyst William Sawyer. "Given the ever-rising number of PEDv cases reported, coupled with a six-month average lifecycle, the months of August through October are likely to be the tightest for processors, where slaughter could decline by 15 percent to 25 percent against 2013 levels. If the virus continues at its current rate, the shortfall to U.S. slaughter in 2014 could be as much as 15 million hogs."
No Middle Ground
The story of PEDv is truly one of the “haves and have-nots.” Producers who experienced mild – if any – cases of PEDv are facing unbelievable margins. Rabobank pegs margins at more than $60 per head for 2014, the highest calendar-year average seen in Rabobank's 40-year record.
Despite the higher margins, however, producers aren’t necessarily expanding their herds. In the June 27 issue of its Quarterly Hogs and Pigs report, the USDA did not indicate any expansion in the U.S. breeding herd. Dr. Chris Hurt, professor in the Department of Agriculture Economics at Purdue University, explained that the report defied his expectations.
“We really saw profitability begin to pick up in Sept. 2013,” says Hurt. “We thought we’d see some expansion showing up, but this report says, no, that is not the case. The other surprise is March-May farrowings. We expected intentions to be up a couple percentage points, but instead it is down fractionally, so it indicates no expansion has taken place.”
The big question now is why, with some producers finally in the black, is breeding herd expansion not happening?
Mike Brumm with Brumm Swine Consultancy, Inc. suggests many producers may be using this year’s profits to “improve their balance sheets after several years of very tough economic conditions.” Another factor may be the transition from traditional gestation stall and pens. In addition, a moratorium on new swine facilities is still in place in North Carolina.
PorkNetwork will be watching the trends closely to see when the inevitable move toward expansion begins.