Pork Commentary – October 13, 2015 – Trans Pacific Partnership

Pork Commentary

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

Trans Pacific Partnership

October 13, 2015

We see real positives with the US Pork Cut-Out at 88¢ lb. with US weekly markets hog numbers around 2.3 million the 88¢ amazes us. The 88¢ reflects the real demand ongoing for Pork and the cut-out is not much lower than it was this past summer when there were significantly less hogs coming to market. 88¢ tells us pork must be moving not only domestically but as exports. With 50-54% market hogs 72¢ lb., the spread to cutouts at 88¢ is over $30 per head. Good time for packers, packers need to take a turn in the wheelbarrow, to remain financially strong and continue investments. Packers are like farmers at some point they can’t stand prosperity and will dilute their margins chasing retail shelf space and other market share battles. It appears to us that US Packers don’t much like each other and compete very hard. This keeps the industry lean and efficient, US producers benefit from the scale, scope and cost advantage US packers have.

Trans Pacific Partnership

The US National Pork Producer Council Position:

NPPC CONFIDENT TPP AGREEMENT WILL BE BENEFICIAL TO US PORK PRODUCERS

NPPC is reviewing the details of the Trans-Pacific Partnership (TPP) agreement negotiators concluded Sunday in Atlanta but is confident the deal will benefit all sectors of the US economy and provide enormous new market opportunities for high-quality American pork products. In a conference call Tuesday, US Agriculture Secretary Tom Vilsack said the TPP will benefit US pork producers, pointing out that in Japan, for example, 65 percent of tariffs on pork will be eliminated in 11 years or less and nearly 80 percent will be eliminated in 16 years or less. The TPP, initiated in late 2008, is a regional trade deal that includes the United States, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, which account for nearly 40 percent of global GDP. Iowa State University economist Dermot Hayes estimated that a good outcome for pork in the trade pact could increase US pork exports over time exponentially and help create more than 10,000 US jobs tied to those exports. Last year, the US pork industry shipped about $4.5 billion of products to the 11 TPP nations. US trade analysts concluded that a TPP agreement that achieves the goals set by Congress and the Obama administration should help level the playing field for US exports in a region that is the fastest growing in the world but where tariff and non-tariff barriers on US goods are significant. It also should ensure that US products are competitive in the region compared with products from non-TPP countries. While the recently concluded agreement should be a boon to US exporters to the region, the TPP has the potential to provide even greater trade benefits if and when it is opened to additional countries, such as The Philippines, South Korea, Taiwan and Thailand, all of which have expressed interest in joining the Pacific Rim trade bloc. It appears to us that TPP is a good thing for US pork producer. With a lower cost of production than all countries but Canada, increased market access, especially Japan will be real positive.

TPP- Canada

Same story in Canada according to Canadian Pork Council chair Rick Bergmann: CPC Likes What It Sees in TPP Agreement Ottawa, October 5, 2015 – “While we look forward to seeing additional details in texts that become available in coming days, based on what was announced today, the CPC strongly supports Canada participating in the Trans-Pacific Partnership”, said Rick Bergmann, Chair of the Canadian Pork Council. Mr. Bergmann cited several reasons for the CPC to welcome the deal:
  • The Trans-Pacific Partnership provides Canada with preferential access to a group of countries accounting for roughly 40% of the world economy.
  • It secures Canada’s ability to export pork to Japan, one of our most important markets to which we sell roughly a billion dollars of pork annually, on fully competitive terms with the United States and other TPP pork-exporting countries. “We learned only too well in the case of South Korea how being the only major exporter without a trade agreement results in very rapid loss of market presence”, said Mr. Bergmann, who farms in Steinbach, Manitoba. “We saw our exports to that country fall by close to 75% within just two years following the implementation of the US free trade agreement with South Korea.”
  • The deal will provide Canadian pork exporters with important competitive advantages relative to non-TPP countries for selling into Japan.
  • The Trans-Pacific Partnership achieves significantly improved terms of access into countries within the TPP other than Japan, such as Vietnam whose population is approaching 90 million inhabitants and whose preferred meat, by far, is pork. Malaysia is another TPP partner offering significant potential for increased Canadian pork sales.
  • As a founding member of the TPP, Canada will be in a position to negotiate terms of entry of other countries seeking to join the deal, such as South Korea, Philippines and Thailand.
  Mr. Bergmann added: “The TPP agreement provides important export growth potential which will encourage Canada’s 7,000 pork farmers to invest in their production facilities and to create new job opportunities for Canadians both on and off the farm”. End of the day US – Canadian pork producers big winners if TPP is implemented. When you are a quality low cost producers cutting tariffs and getting market access is nothing but a step in the right direction.
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This post was written by Genesus