By Steve Meyer, President of Paragon Economics and a Pork Checkoff consultant As I write this, it has been 364 days since the first U.S. case of Porcine Epidemic Diarrhea Virus (PEDV) was diagnosed at the Iowa State University Veterinary Diagnostic Lab. I believe everyone was concerned about that news.
A new disease always brings a chill of apprehension, but I doubt anyone knew just how concerned they should have been on May 17, 2013. As it turns out, “very concerned” or “scared to death” both may have been appropriate. The truth is, we still don’t know which better describes this menace to baby pigs.
Not the Foreign Animal Disease We Feared
For years, the U.S. pork industry has feared, considered and planned for the introduction of a foreign animal disease, with virtually all of the attention on Foot-and-Mouth Disease, African Swine Fever and Classical Swine Fever. Any of these would immediately close exports markets, destroying demand for roughly 23 percent of U.S. production.
Domestic supplies would increase dramatically, pushing prices down sharply in order to clear the market. That assumes that domestic demand would remain relatively strong in spite of what almost certainly will be a public relations hurdle as news services cover control and eradication efforts.
PEDV though, is not a demand-killing bug. In fact, pork demand has remained strong since PEDV first appeared, with real per capita pork expenditures growing nearly 6 percent in 2013 and over 5 percent in 2014 through March.
There have been virtually no instances in which the safety of pork has been questioned due to PEDV, and consumers and the popular press have remained calm. This is due in large part to fact-based messages regarding food safety being shared by the pork industry.
The irony of PEDV is that as a supply-impacting disease, producers could be financially better off this year for the following reasons:
1) Demand for pigs is inelastic. This means that any reduction in the pig supply will cause a price increase that is larger in percentage terms than the supply reduction. Further, the relative price change (i.e., price flexibility or multiplier) normally ranges from -2 to -3. So, for every 1 percent reduction in quantity supplied, prices will usually rise 2 to 3 percent.
Since total revenue is price times quantity, a 1 percent decrease in pig output causes a 1 to 2 percent increase in total revenue for producers.
2) Some producers are not losing a large percentage of yearly output to PEDV. Current evidence indicates that most herds return to normal production within five to eight weeks, with most losses in the first three to four weeks. So, 8 to 12 percent of output is being lost on infected farms. Larger producers with multiple sow farms may avoid having PEDV at every location.
The obvious exceptions are single-site producers who farrow less frequently than once every two months or so. They could see pig losses proportionally larger than the price increase witnessed so far in 2014, meaning their total revenue would decrease.
Record Profits Expected
For producers as a whole, add to higher revenue the fact that production costs are 10 to 15 percent lower this year, and it is easy to see that 2014 will likely be a year of record profitability for producers.
So who will be hurt by PEDV? Consumers and middlemen (packers, processors, distributors, retailers) and people who work for them. Consumers will pay higher prices for pork and other proteins since high pork prices will allow those values to rise, as well. Middlemen and their employees will be hurt by reduced throughput and, most likely, operating hours.
How Big Has the Impact Been? How Big Will It Be?
No one knows the answer to those two questions with certainty because our data systems are not geared to accurately tell us how many pigs have died from the disease. There are three different data sources, each of which approach the issue from a different point of view.
1) National Animal Health Laboratory Network (NAHLN) – This network provides weekly data to USDA’s Animal and Plant Health Inspection Service on the number of case submissions and positive case accessions. Data are provided by states, but the labs have no way to know much, if anything, about the number of pigs lost, the number of pigs at risk, etc.
So all we know is that each accession represents a set of samples submitted for a given farm at one point in time. Many represent new cases, but some are retests on farms infected earlier. Farms that don’t submit samples to diagnostic labs generate no data. Figure 1 shows weekly positive PEDV case accessions for the U.S. and several key states.
2) University of Minnesota Swine Health Monitoring Project – The College of Veterinary Medicine publishes weekly updates from large farms. Participants have steadily increased to 16 as of mid-May, with nine participating publicly and the identities of the others confidential.
The 713 breeding herds account for about 2.5 million sows, with 57 percent having been infected by PEDV in the past 12 months. Of the 713 breeding herds, 315 are in the Midwest, 62 in the Oklahoma Panhandle and 336 in the Southeast.
The new Census of Agriculture indicates, however, that there are far more farms with breeding hogs in the upper Midwest states than in the Southeast. This suggests that firms reporting may under-represent the Midwest herd, which saw rapidly increasing PEDV case accessions this winter.
3) USDA’s Hogs and Pigs Report – USDA’s March 28 report represents March 1 inventories and should reflect PEDV baby pig losses to that date.
Inventories, with the exception of the breeding herd, were larger than analysts expected but reflected some PEDV impacts. The average number of pigs saved per litter was the lowest since early 2009, and the December-February pig crop was down 3.6 percent from last year.
USDA’s September through November pig crop, though, was as large as a year earlier, a finding that does not fit with March slaughter that was 6.7 percent lower than in 2013. March slaughter is made up primarily of pigs born in September.
The report also pegged the December through February pig crops for Minnesota, Iowa and Illinois at +5, +2 and +3 percent, respectively, from a year earlier. These numbers do not jibe well with NAHLN data that shows rapidly rising PEDV case accessions in the Midwest during that period.
So Where Do We Stand?
The honest answer is that we do not know. If more than 50 percent of sows have indeed been infected, with pig losses of 2.7 to 3.0 pigs per sow as widely established by producers dealing with the disease, we lost 7-8 million pigs from June 2013 through April 2014. Distributing these numbers according to the accession data suggests hog slaughter could be down 10 percent from 2013 levels from July through September.
Higher weights will make up 3 to 4 percent of the reduction, but pork supplies will, in my opinion, be tight in the second half of 2014. I expect weekly slaughter to drop quickly after June 1 and national barrow and gilt prices to spend most of the summer in the mid-$120s per cwt., carcass.
There is little data to suggest what may happen beyond September. Warmer weather has slowed the rate of positive accessions, so slaughter reductions should get smaller in the fourth quarter. The same should apply to the first quarter of 2015 if case numbers fall as expected this summer.
Beyond that, PEDV’s impact depends on:
1) Whether an effective vaccine is developed,
2) The degree to which immunities persist in herds that have already dealt with the disease, and
3) How effectively producers apply management practices they have learned to prevent future breaks.
Things are better now. But the only certainty is that the future of PEDV’s impact is still quite uncertain.
Read more about PEDV in the new summer edition of Pork Checkoff Report.