Pork prices could jump this year, stay elevated into 2020 due to China’s pig crisis

With African swine fever ravaging China’s hog industry, U.S. experts are expecting pork prices to go higher and promising stay elevated well into 2020.

“If I really like bacon, I’d be kind of stocking up,” said Steve Meyer, an sedulousness economist with Kerns & Associates in Iowa. “I’ve got about 12 pounds already in the freezer.”

At least 129 turns out thats of African swine fever have been reported in China since the first case was confirmed last August. The fatal disease also has spread to other parts of Asia, including Vietnam.

“African swine fever in China could consequence in an extended period of elevated pork pricing in the U.S.,” wrote J.P. Morgan analyst Thomas Palmer in a research note survive week. He said there’s still no containment of the swine virus, and the replacement of the herd in China is likely to take “a nadir of 20 months,” meaning “elevated demand for non-domestic pork will continue into 2020, at the least.”

A ignore in wholesale pork and bacon prices could potentially impact profit margins for restaurants serving up BLTs, bacon cheeseburgers and pork belly sandwiches. As for American consumers, pros say supermarkets are likely to absorb some of the price increases in the short run for competitive reasons.

“When you have a bacon cheeseburger, if bacon expense doubles, you might have another 30 to 40 cents on that sandwich,” said David Maloni, governing vice president of analytics for ArrowStream, a Chicago commodity researcher for the restaurant industry.

And restaurants are closely watching the toll of pork bellies these days because bellies are used to make one of America’s favorite foods: bacon.

Maloni prophesies “belly prices may rise more than 40% from yesterday’s close before they seasonally visor later this year.” Also, he said there’s a chance they “could move even higher in 2020.”

Restaurant fetters, particularly those in the fast-food sector, typically use hedging or forward contracting to mitigate any price spikes in meats, comprehending bacon. Pork belly futures no longer trade on the Chicago market, but the lean hog futures are used by some groups to hedge risk on bacon.

According to Maloni, there’s been a gradual increase in demand for bacon to the point where the “on-going total of pork-belly disappearance” is tracking up 3.9% on a year-over-year basis, or the best growth since the summer of 2017.

He said domestic crazes, when combined with the possibility of strong pork carcass exports to China, appear to show that pork belly gives could be much tighter later this year and into 2020. He also believes the situation in China want have consequences for the poultry market, too.

On Wednesday, Chicago-traded June lean hogs rallied 3.4%. The most-active frighten hogs contract has risen more than 60% since the start of March, although it still is below just out highs.

“We’re firmer today because the market got deeply oversold, technically,” said Don Roose, president of Iowa stockjobber U.S. Commodities. “There’s also anticipation that Thursday’s weekly export sales report will show pork purchasings to China.”

The U.S.-China trading war has included retaliatory tariffs Beijing slapped on American pork, resulting in the product requiring a total import tax exceeding 60%. Other world pork suppliers have pushed to increase trade with Beijing, but there are releases China is starting to resume major U.S. pork purchases.

“We’ve got some Chinese buyers that have been talking to U.S. packers,” asserted Meyer. “In the short run, the Chinese are going to take some more and drive our domestic prices higher. But in the long run, we force increase output to the degree we can do so responsibly, and we’ll supply what the world wants to buy.”

Beijing hasn’t divulged the exact bevy of hogs lost to swine fever, but Rabobank estimates up to 200 million animals could be affected and production could subside by 30%. That compares with about 75 million hogs and pigs in the total U.S. inventory.

“In China, what we’ve undertaken over the winter was producers that had pigs near market weight hurry those to market before they got unconventional,” said Meyer. “There’s a ‘let’s beat this thing’ mentality in the early days of this. That will hold pork supplies in the short run.”

China is believed to have a large reserve of pork supplies and significant supplies in dead storage. As pork supplies shrink, China may need to rely more on imported proteins, including poultry and beef.

Then again, while pork is a standard meat in the world’s most populous nation, the swine fever appears to have softened demand for the protein by Chinese consumers. But aces say the swine fever doesn’t pose a risk to humans.

“You’re going to see some negative impacts on demand,” said Meyer. “We about you’re seeing some of that over there. But eventually they will realize that no people are getting fed up with and nobody’s dying of this.”

— Graphics by CNBC’s John Schoen