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'The Threat Is Real': Protein Supply Chain Disrupted As Hog Disease Spreads

'The Threat Is Real': Protein Supply Chain Disrupted As Hog Disease Spreads

Over the last year, African swine fever wiped out 1 million hogs in China and many more across Europe and Southeast Asia.

“This is an unusual, perhaps unprecedented time of the protein industry,” Tyson Foods, Inc. (NYSE: TSN) CEO Noel White said on Monday’s second-quarter earnings call.

“In my 39 years in the business, I've never seen an event that has the potential to change global protein production and consumption patterns as African swine fever does.”

Analysts forecast the loss of some 150 million to 200 million pigs this year, which Tyson said threatens 5 percent of the global protein supply.

Immediate Impact

The global decrease in pork has its upsides and its downsides. Rising input costs have already begun to pressure margins in Tyson’s prepared foods segment.

But profits could come sooner or later. Archer Daniels Midland Co (NYSE: ADM) said Chinese supply could fall as much as 30 percent, and someone will need to fill the void.

“China will clearly need to import substantial amounts of pork and likely other meat and poultry to satisfy demand,” Archer Daniels CEO Juan Luciano said on an April earnings call.

Beef, chicken and pork prices are expected to rise globally, and Tyson considers itself well-positioned to capitalize long-term.

“The power of our diversified business model and broad product portfolio across multiple geographies will be even more important under these circumstances,” White said. “ ... It will be multiple years before the supply balance comes back into equilibrium.”

Overall, Tyson expects the impact of ASF to be more positive than negative, but without clarity on timing, it's omitting the factor from guidance.

“We do think that there will be an expansion place in beef, pork and poultry,” White said. “It's a matter of if it's in fiscal 2019 or if that moves into 2020.”

A Direct Threat

To be sure, that’s the predicted impact if the disease remains contained. If ASF strikes U.S. farms, domestic producers could suffer $10 billion in damage in the first year of outbreak, according to the USDA.

Researchers cite a risk of contamination from contraband. In March, the USDA seized 1 million pounds of pork smuggled into New Jersey from China.

“I think the threat is real,” White said. “The situation is fluid and fast-moving, but we're working with others in the industry, government agencies and producers to prepare in the event ASF spreads to North America.”

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