Saturday, January 11, 2014

Virus problems in commercial pork production

StephenP emailed me a link to a news story, and it's something that I should talk about a bit - Despite piglet virus, pork is safe to eat

This news article is talking about a problem that commercial pork producers are having right now with a virus that kills young pigs; this particular virus is called Porcine epidemic diarrhea virus (PEDV).  This virus affects small pigs, usually pre-wean, the most.  

It's not a new virus; it was first diagnosed in 1971.  It's currently causing large production problems in the midwest, but there are outbreaks in most areas that have pigs.  

This virus is specific to pigs; it represents no risk to any other animals, and the meat is safe to eat.  The basic mechanism that it kills young pigs by is dehydration, and the cure is to infect your entire herd; once a sow has had it, her piglets are then immune.  

This is a virus based illness, so antibiotics don't work, and there's no effective vaccine for it because the cost of curing the virus - infecting your herd and then letting the naturally immune pigs produce more immune pigs - is so low for most producers that the risk/cost of developing a vaccine isn't worth it to industry.  

So this is mostly a short-term problem for a lot of facilities, but there are three things that are going on that are making commercial piglets very expensive right now.  3 week old pigs in iowa are being sold for $90+ each in quantities of 500 or more.  For those places that can produce pigs right now they're basically printing money after years of losses.  

The three things that are combining to raise pig prices are 1) a bumper crop of corn last year, 2) lowered production due to this disease and reduced capacity from low prices in previous years, and 3) normal seasonal variation.  

1) bumper crop of corn:  For those farmers who are raising corn, many have the option to either sell their corn directly into the market, or to sell it in the form of beef, pork or chicken.  More beef and pork than chicken, as most chicken these days are raised by contracted growers.   You also see investors doing that as a short-term direct investment in a commodity.  

There are pig barns for lease in various parts of the midwest and brokers who can buy you the pigs to put them in, and management teams to run the barns.  So if you're sitting on a hundred thousand bushels of corn and soybeans, a few phone calls and you're in the pig business.   With the bumper crop of corn last year -- the biggest corn crop ever harvested in the USA -- the concern is that the price will drop, so having some pork production is a common way to physically hedge your risks.  Sell some corn, sell some pork, spread your risk around a little.

2) lowered production.  Pig farming hasn't been profitable for the last 4 years that I've been watching it carefully, and probably before that.  High feed prices and flat pork prices meant that it was usually worth more money to just sell the corn directly instead of putting it through a pig.  So a lot of production facilities closed, others consolidated, and some just shrank to a minimum number.  In recent years, pigs and pork exports have risen sharply and we're facing a small supply for a pretty good demand for pork.  So I'm seeing weaned pig prices in iowa for $90 each, qty 500 or more -- that's at least 20% higher than the highest price I can recall.  

3) and seasonally, pig prices usually go up in january, so we're pretty much at peak of market.  

Between these three factors, I'm expecting the price of supermarket pork to go up in 6-8 months as these $90 pigs reach market weight.  

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