As if we needed more African swine fever news: South Korea reported its first case of ASF on a farm near the North Korean border, with a second report coming just one day after. This marks the eighth Asian country to be hit with the deadly swine disease and continues to push U.S. price risk to the upside as South Korea has, historically, been a favorable U.S. pork export partner. Year-to-date, South Korea’s pork imports from the U.S. are 11.6 percent lower from last year, with USDA looking for total 2019 pork imports (from all destinations) to drop 7 percent. Pork is the most widely consumed protein in South Korea, and imports make up approximately one-third of South Korea’s consumable pork supply.
It remains to be seen whether South Korean consumers will shift away from pork, opting for beef or chicken instead, but it is likely that at least some additional import interest will emerge. Recently, Global AgriTrends reported that Korean pigs are 8x more densely populated than those in China which leaves one of two conclusions: the density of pigs will cause the disease to spread more rapidly, or more advanced bio security measures are in place, as fewer farms are categorically “backyard” or independent. My money is on the latter, but the ease by which the virus is spread, as well as the severity of the illness should not be underestimated.
Currently, both the futures market, as well as the wholesale pork markets are relatively unmoved by the news, with bellies and hams struggling in the wholesale market while the nearby futures contract is a whopping $30 off of its May highs. We’ve seen product make two sizable runs this year only to fall sharply following the run, and it looks like pork buyers aren’t going to be suckered into another buying spree heading into “pork-tober”. Still, exports remain relatively robust, with the weekly data continuing to point towards more active interest, BUT, when we remove China from the export equation, the story is a bit more humbling. While total pork shipments across the past six reported weeks are up 18 percent from year ago, shipments ex-China are down 12 percent throughout the same time frame.
South Korea remains a relatively limited buyer of U.S. pork in 2019, but the potential is certainly there for the country to step in and begin buying U.S. pork more aggressively if the need arises. Look for pork processors to remain optimistic regarding expectations for upside into 2020, likely offering forward prices at significant premiums to prevailing spot market prices. Currently there are limited signs that much product is moving beyond the initial China interest, but that can certainly all change. as time goes by.