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Winners begin to emerge from fallout of China's African swine fever 'crisis'

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The year of the pig was billed by followers of Chinese horoscopes as bringing fortune and luck.

 

It is becoming clearer to whom, with Chinese swine themselves certainly not benefiting, thanks do the outbreak of African swine fever could leave up to 200m pigs culled, or killed by the disease, on Rabobank estimates.

 

Agco, the owner of marques such as Challenger and Fendt, joined those forecasting some potential benefit from the virus – albeit acknowledging a dent too from the hit to soybean prices, as China’s hog liquidation slashes feed needs.

 

Andrew Beck, the Agco finance director, while saying that “there’s a lot of pros and cons on this”, viewed that “long-term, we think that it will be positive for our business”, referring in particular to Agco’s GSI division, which makes crop storage and handling equipment.

 

Growth areas

One boost is from expansion by producers aiming to fill the void in Chinese protein supplies, with “the fastest way to do that typically with egg and poultry.

 

“So we’re expecting to see some improved demand in that area,” Mr Beck told investors.

 

“Secondly, once we get past the crisis, the China market will, we think, upgrade their equipment in order to have equipment that helps prevent this from happening again.

 

“Because of that, we expect to see some growth in that market in the long term.”

 

Force for consolidation

It is thinking which tallies somewhat with that of agricultural trading giant Archer Daniels Midland, which believes that one outcome of African swine fever will be an acceleration in consolidation in China’s swine sector.

 

“The more acute crisis is in the small [Chinese pig] farms,” which have a less rigorous feeding regulations, Juan Ricardo Luciano, the ADM chairman and chief executive said a week ago.

 

“Bigger, larger companies, they are more professional feeders.”

 

“The crisis will, without some of the small farmers… consolidate the industry,” encouraging the emergence of “larger players that will be more users of soybean meal”, rather than of food scraps.

 

Which might well encourage purchases of the kind of equipment that GSI, and rivals, provide.

 

‘Significant gap’

Mr Luciano too stressed the opportunity for protein producers to meat a gap in Chinese supplies “of about, give or take, 10m tonnes” created by ASF.

 

Such a sum was based on an estimate that “of the probably 700m heads of annual hog production in China, we may see about 20-30% of that disappear. That’s about the size of the US production.”

 

And while perhaps 4m tonnes of the lost 10m-tonne void may “shift to another proteins”, such as poultry, “that leaves still a significant gap” to be filled by imports, with Brazil, Europe and North America seen “more likely to be able to serve that”.

 

Latest export data from the European Union show a 39% rise year on year, to 275,254 tonnes, in pork shipments to China over January and February.

 

US pork exports to China have soared to 59,900 tonnes so far this year, from 1,300 tonnes a year ago, with a further 106,400 tonnes on order.

 

‘Severe damage’

And sales to the US could stand to accelerate further assuming a trade deal with China, and a ditching of extra import tariffs introduced last year.

 

Still, thinking on the boost to that was more muted, with Mr Luciano saying that a resolution, while positive for US shipments of grains, pork and ethanol, may not provide such a boost to soybean trade, simply because the ASF outbreak has undermined China’s needs for oilseeds to crush into meal.

 

Agco chairman and chief executive Martin Richenhagen, meanwhile, cautioned over the potential for it take some time for wounds caused by the trade war to heal.

 

“The damage which our administration has created to the relationship between American farmers and Chinese consumers is severe, and we need to see how fast they basically come back.

 

“Because in the meantime, [China] found solutions outside the US.”

 

There will “probably not” be a “quick” snapback after a deal, “but also noted a very long recovery”, Mr Richenhagen said.

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