May 9, 2019

African Swine Fever Could Spoil Milk Prices

 |  By: Anna-Lisa Laca

For months the pork industry has been keeping a vigilant watch on China’s devastating outbreak of African swine fever (ASF). This deadly and untreatable disease was first confirmed in China on Aug. 3, 2018. Since then, the disease has spread to several other countries around the world and has sent shockwaves through the pork industry. 

In China alone, ASF is expected to result in a 30% loss in pork production in 2019, according to new research from Rabobank. What does the rapidly spreading death of world’s largest hog herd have to do with milk prices? Well, Chinese hogs are a driving force of U.S. whey exports to China. ASF combined with tariffs could put significant pressure on export markets and in turn, milk prices. 

Prior to the ASF outbreak, China slaughtered 700 million hogs each year. Those pigs consumed an estimated 250,000 metric ton of lactose, according to Rabobank. 

“With a much lower herd size expected in 2019, China’s demand for feed-grade whey, permeate and lactose will also shrink,” Rabobank analysts wrote in a recent report. “The expected 150 metric ton to 200 metric ton reduction in pigs represents an estimated 54,000 metric ton to 72,500 metric ton decrease in lactose or lactose-equivalent demand in piglet feed.”

Before China put an additional 25% tariff on dairy goods in July 2018, the U.S. accounted for 55% of China’s whey and permeate imports and 75% of its lactose imports. Since July 2018, the U.S. has lost market share to other countries and regions, including the European Union. Still, the U.S. was a key supplier in 2018 because of the vast size of the Chinese market. This will not be the case in 2019, Rabobank predicts. 

“China’s imports of dry whey and permeate contracted by 15% in Q1 2019 to 115,323 metric tons and its imports of lactose retreated by 5% to 21,379 metric tons during the same period,” Rabobank analysts said. “U.S. whey and permeate exports declined year over year by 53% to 35,219 metric tons representing a 25% drop in market share.”

Lack of Chinese demand for these dairy products is contributing to lower global dry whey prices. CME and USDA spot prices for whey and lactose used to feed livestock are declining. 

“Further downward pricing pressure is anticipated as a result of significantly weakened demand from the Chinese swine sector, forcing manufacturers to find new outlets for their products in food-grade applications, other animal feed sectors and new export destinations,” Rabobank analysts said. “It’s also important to note that lactose and dry whey prices contribute to farm-level milk prices in parts of Europe and the U.S. For example, a 1¢ change in the U.S. dry whey price results in a 6¢ move in the Class III milk price, which may cast a shadow on the milk price outlook.”