Pork Commentary

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

US Country of Origin Labeling – Canada gets a win

June 15, 2015

Canadian Swine Producers got some good news this past week when the US House of Representatives voted 300 – 131 to repeal Country of Origin Labeling. (COOL) This a very strong recognition that the World Trade organization finding that labeling discriminates against cattle and swine imported from Canada and Mexico, and could lead to legal retaliatory tariffs up to $3.7 billion per year instituted against US items such as wine, meat, jewelry and furniture etc. Now the US senate has to consider the country of origin (COOL) issue. Since the implementation of COOL, Canadian swine producers have been hurt financially. Several slaughter plants in the US will not take Canadian pigs due to the COOL ramifications and the others that do take Canadian hogs, do so at a discount. The cost to the Canadian Industry according to the Canadian Government is in the billions. Since COOL implementation, the Canadian Breeding Herd has declined by over 20%. Not all the decrease is attributable to COOL cut it certainly was a major factor. If COOL is repealed and we expect it will be, we expect more free flow pigs from Canada. The Eastern Corn Belt with the new swine plant in Michigan being built will be short hogs. We expect this will lead to market hogs from Ontario, Canada, which is short packer capacity to come to eastern states. Capacity might be a different story with most hogs staying there as long as Canadian Packers stay price competitive. In our opinion COOL was not effective as a marketing plan for consumers’ confidence. It was effective in hurting Canada’s swine industry. China China China My Grandmother said, “Never beat a dead horse”. It seems we continue to talk about the potential for large US pork exports to China. So far, they have increased but they have not taken off. Some more news – as reported in the Genesus Global Market Report by Ron Lane.
  • In April China’s Ministry of Agriculture reported that China’s breeding inventory declined 687,000 sows. Since the first of January, China has decreased 3.19 million sows, since February 2014 the China Sow herd has declined 11.45 million sows. It’s almost unfathomable, the liquidation levels.
  • The April China swine inventory was 387 million, down 34 million from last Aprils 421 million. Using 26 weeks from birth to market for a pig, the decline year over year is equal to an average of 1.3 million less hogs per week.
  • If China liquidated 687,000 sow in April there is no way liquidation has stopped. More are already out since then.
  • Liquidation has happened because many producers have been losing money. We all know that no one quits because they are making money. Farmers are farmers everywhere in the world.
  • In 2014 Genesus supplied 36% of all breeding stock imported to China from the world. When people are getting money it effects breeding stock sales. China has imported in 2015 so far only 1,000 swine breeding animals from the whole world in a market with 40 million sows. That is a reflection of how bad it has been.
  • Chinas hog prices at the end of March was 12.09 rmb/kg or 88¢ US liveweight a lb. The week of June 2 the Chinese price had risen to 14.45 rmb kg or $1.06 US Liveweight a lb. In 2 months, China’s market hogs have gained $45 US per head. Just as importantly, the spread between the US current price of 58¢ lb. and China’s $1.06 is over $120 USD per head. The spread is why we see upside for more pork exports to China from North America and Europe. With a $125 per head window, believe the capitalism is alive and well and pork will be moving. We believe the Chinese owners of Smithfield Foods will figure out how to ship pork at a $125 per head.
  • In our opinion the longer liquidation in China lasts, the higher prices will go and for longer. Prices have gained $45 per head in two months. In China, we expect further price increases.

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