NASHVILLE, TENNESSEE, U.S. — The severity of the African swine fever (ASF) outbreak in China “is probably a lot more severe than we thought,” Ray G. Young, executive vice-president and chief financial officer of Archer Daniels Midland Co., told participants during a Nov. 13 presentation at the Stephens Investor Conference in Nashville.
“We … indicated that we thought that the impact on the global meal market would be felt by the end of the year, the fourth quarter, back half of the year,” Young said. “We really haven’t felt it yet in terms of the overall crush margins. I think probably on a marginal basis, there’s been some positive impact. But the overall impact, we probably haven’t felt yet in terms of overall crush margins.”
As 2020 approaches, Young said ADM is seeing more signs signaling the severity of the outbreak. He said annual pork production in China has likely dropped by 20 million tonnes this year, down from ADM’s earlier estimate of a 10-million-tonne decline.
“You’re starting to see, as an example, a lot of the U.S. packers converting their plants to be able to ship carcasses over to China,” he said. “You’re starting to see China now starting to purchase meats from Canada. Remember, they actually stopped buying meats from Canada because of this dispute over the Huawei issue. Now they’re actually starting to allow for the importation of meats from Canada. You’re starting to see significant export activities of meats coming from Brazil, coming from the E.U. into China. So the deficit situation in China in terms of pork is, in my mind, starting to result in a significant pull of animal protein from around the world. And that should translate into incremental soybean meal demand.”
Young said indications from some protein producers are that the impact of ASF could lead to a 2% to 3% expansion in animal production in the United States in 2020. As a result, the soybean meal market could get a boost.
Meanwhile, Young described the ethanol margin environment in 2019 as “terrible for the industry.”
“I mean the industry is basically running at breakeven EBITDA margins,”
he said. “We think next year, 2020, I don’t think the margin environment could get worse than 2019. We’re seeing evidence right now, just based upon idling of certain ethanol capacities around the country, that the margin environment actually has picked up in the back half of the year, which is unusual because normally after Labor Day, ethanol margins come down in the industry.”