Dairy Farmers Have Another Thing to Worry About: Swine Fever
(Bloomberg) -- Yet another market is being shaken up by the African swine fever raging in Asia: Surprisingly, it’s U.S. dairy farmers.
Pigs eat components of whey, which is a cheese byproduct. Because China’s herd is shrinking due to swine fever, demand is plummeting. In addition, due to the Asian nation’s trade war with the U.S., it has started sourcing the whey it does need from other countries.
Pricing has already been impacted. Whey powder prices have dropped as much as 20% this year, while a whey component known as permeate has lost half of its value since February. This comes as dairy farmers have battled years of unprofitable milk prices as supplies outpace demand.
“There’s a double hit,” said Blake Anderson, chief executive officer of the
American Dairy Products Institute. “There’s the swine flu situation and then there’s the ability to even get product into China, for example, due to various trade barriers or tariffs."
U.S. dairy farmers could see a reduction of 50 cents per hundredweight or more off their milk checks due to the dynamic this year, said Mary Ledman, global strategist for dairy at Rabobank.
And it’s not a one-year problem, given how much the population of sows in China may have decreased, she said. It could be as much as 50%, according to Gabriel Sevilla, vice president of global sales and marketing at Proliant Dairy Ingredients. That could lead to up to a 150,000 metric ton reduction of whey permeate, he said.
The company’s Chinese customers have said that 2019 will be the worst year for feed mills in two decades.
Prices could turn around if the trade war ends, and higher pork prices could eventually encourage Chinese farmers to repopulate their herds, Sevilla said.
Demand could also increase as China’s hog industry is likely to consolidate, moving away from smaller farms. Those big and more professionally-managed facilities are likely to increase the amount of dairy products in their feed ration, bringing it closer to the amount used in countries like the U.S., Rabobank’s Ledman said.
“This is going to impact all of us,” said Henrik Andersen, chief executive officer at Arla Foods Ingredients. “When prices in the feed segments go down, it tends to impact the other segments as well.”
Dairy farmers have already been battling years of unprofitable milk prices as supplies outpace demand. Small operations in particular have been unable to stay afloat. In Wisconsin, known as America’s Dairyland, nearly two dairies a day exited the industry in 2018 due to the pressures.
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