February 8, 2019

Swine Fever, Retaliatory Tariffs Hit U.S. Whey Prices

 |  By: Fran Howard

The U.S. whey market has been in a sharp decline. Between mid-January and early February, the CME whey price has shed 14.25¢, or 28%, driven primarily by continued trade tensions between China and the United States. However, China’s widespread outbreak of African swine fever has put thousands of animals in harm’s way, which could potentially reduce demand for U.S. whey.

“According to China’s lunar calendar, 2019 is the year of the pig, but so far, the year is not shaping up to be a good one for China’s pork industry, and that in turn could hurt the U.S. whey industry,” says Sara Dorland, dairy analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle. 

A recent article in the South China Morning Post reported that the disease has had a profound negative impact on China’s small hog farms. “While African swine fever poses no problem for humans, the incurable disease is highly contagious for hogs,” Dorland says. “The Chinese government has banned the movement of hogs from infected provinces, dealing a crushing blow to small farms relying on trade with other provinces for income.” 

African swine fever in China was first detected in northeast Liaoning province in early August. Since then, more than 100 outbreaks in 25 provinces have occurred, according to Xinhua, China’s official state-run news agency. If small farms exit the business as anticipated, hog production could plunge 20% in 2019, according to the South China Morning Post. A 20% reduction in the pig herd would, in turn, reduce demand for whey used in piglet rations, Dorland says.

China is both the world’s largest producer and consumer of pork, and whey is a staple of piglet rations in China. Demand for imported whey by China began to fall in the second half of 2018, following the discovery of African swine fever in China and the country’s implementation of retaliatory trade tariffs on U.S. whey products, according to Dorland. For the full year, China’s 2018 imports of whey products increased 5.1% over 2017 levels, driven by strong shipments in the first half of the year, when China imported 10% more whey than in the same period in 2017. However, imports of whey in the second half of 2018 fell 0.5% behind prior-year levels, she adds.

Not only is China importing less whey, it is also importing less whey from the United States due to the ongoing trade tensions between the two countries. “A slowdown in China’s whey imports have negatively affected U.S. export volumes to the single-largest destination for U.S. whey,” says Dorland. “While the fallout from African swine fever has likely had a limited impact on Chinese whey consumption so far, the potential for a significant setback exists. Fears of a pending decline in whey used in pig rations have likely weighed on prices.”

The impact of the U.S.-China trade war on whey could be long lived. “As China has pulled back on whey product imports from the United States, it has likely ramped up purchases from Europe,” Dorland says. “This lost volume could cause lasting harm to U.S. whey exports if the two sides are unable to come to an agreement early this year.”