Pork Commentary

Jim Long President – CEO Genesus Inc. info@genesus.com

Country of Origin Labelling Repealed by US Senate.

December 21, 2016

The big news for North American Swine Producers was the US Senate vote last week to repeal US Country of Origin Labelling (COOL). The legislation now only needs a signature from President Obama to be put in the dustbin of history. The World Trade Organization recently granted Canada and Mexico the right to impose $1 billion in punitive tariffs on various US products after finding COOL provisions on Beef and Pork products violated international trade rules. Kansas Senator Pat Roberts, the Republican chair of the Senate agriculture committee, expressed relief Friday. Roberts said that retaliatory measures would have been damaging to the US economy. The targeted US products for tariffs have included cattle, pork, apples, rice, maple syrup and wine but also not agricultural products such as jewellery, office chairs, wooden furniture and mattresses. Our Observations
  • President Obama needs to sign the repeal soon otherwise Canada-Mexico could still proceed with tariffs. We expect President Obama will sign soon; he has much bigger issues that need his focus.
  • COOL repeal will allow Canadian Swine to be treated on equal footing with US hogs. This will lead to stronger prices for Canadian pigs no longer discounted by COOL bureaucracy implications.
  • More small pigs and market hogs will come to USA, not only stimulated by packers and finishers demand but pulled by a US Dollar that currently is almost 40% higher in value than the Canadian Dollar. (Canadian Dollar 72¢ to $1.00 USD)
  • We expect in the province of Ontario the desperate pricing and marketing situation due to the lack of shackle space will be alleviated by COOL repeal as more small pigs will go to the US to be finished and more market hogs will find American plants. Recently one US packer was helping Ontario Farmers by offering $70 USD per market hog delivered, a huge discount. With COOL repeal, this type of selective robbery will be eliminated.
  • In Western Canada COOL repeal will put further pressure on western Canadian Packers to get enough hogs as the pull of US market for small pigs and market hogs could lower supply further. The key part will be prices paid by Western Canadian Packers vis-a-vis US plants less trucking costs.
  • US producers will benefit from COOL repeal as now their Number 1 & 2 market for pork Mexico and Canada will not be tariff impacted. US packers will benefit from not having to differentiate and label product while ending the administration cost associated with the COOL bureaucracy. US Packers will also benefit from a greater potential supply.
  • Canadian Packers might be the big losers as now they have US plants to compete with for supply. The Canadian Plants should have lower operating costs in US dollar terms due to the devaluation of the Canadian dollar but they will have to pay to keep hogs in Canada.
  • We do not expect COOL repeal will lead to expansion of the Sow herd. What it will do is pull pigs and hogs to their higher value. Canada- USA-Mexico signed a free trade agreement in 1993 (NAFTA), for ten years COOL spat in the face of that agreement. Now the US congress has recognised this error with the COOL repeal. Time to move on.
  Other Observations
  • Russia the downturn in the economy and capital availability is slowing the massive planned expansion. Some going on but not at the speed expected six months ago, Russia hog prices currently $65 per head higher than the US price. (62¢/lb. USD versus 37¢/lb.)
  • China hog price is $1.18 USD/lb. (16.83 rmb) up $100 per head from last spring and currently $200 per head over US market. Saw a report last week that China’s Pork supply is being covered by higher carcass weights. If that was true, why is price is $100 head higher? Crap report they are short pork and that is why price is astronomical and producers making good profits. We still expect accelerated pork imports to China as China’s pork in storage gets eliminated. 11 million sows liquidated will not be covered by a small increase in carcass weight.
  • We were with visitors from Russia and Europe this past week. We were told that there is low expectation for Russia opening up for US or North America for Pork imports soon or maybe ever.
  • Our European visitors told us that recently some US early wean pigs traded around $6.00 per pig. Their opinion is that there is massive sow liquidation that could head to one million less sows in the European Union. Full Cycle (Farrow to Finish producers) are losing around 20 Euros ($22USD) per head. Many farms going empty and bankrupt. Not a pretty picture. Europe losing the Russian pork Market has led to a very damaging situation.
  • Finally it was interesting the European’s take on PIC’s new Prrs Genomic research. It was the consensus that Europe’s Governments, Packers and Consumers would never accept such technology. Not sure if this is correct but you need only look at Paylean and Improvest to see market and regulatory resistance. Then think about pressure on antibiotics. How can we expect genetic manipulation not to have a big challenge. It will be interesting how the PIC Prrs scenario plays out in the consumer world. History tell us twenty years ago a successful transgenic pig was developed at the University of Guelph. No packer or retailer would touch the products. History tends to repeat itself.
  • The first genetically altered Salmon was approved by the US FDA recently. Already according to TIME Magazine certain retailers, including Costco, Whole Foods, Trader Joe’s, Safeway, Kroger and Aldi said that as of now they do not intend to sell the fish.
“The real discipline comes to saying ‘no’ to the wrong opportunities.” ~Peter Drucker Management Writer (1909-2005)  

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This post was written by Genesus