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Tuesday, December 20, 2005
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US Swine Economics Report

Regular report by Ron Plain on the US Swine industry, this week discussing Canada's introduction of a corn duty on US imports.

Ron Plain
Ron Plain

On December 15, the Canadian Border Services Agency enacted a preliminary duty, effective immediately, of US$1.65 per bushel on unprocessed corn imported into Canada from the U.S. This decision is in response to a complaint filed on August 12 by corn producers in Ontario, Manitoba and Quebec who complained that U.S. corn producers were being subsidized and exporting corn at prices below the cost of production. The duty is composed of a 58 cent duty for dumping (selling below cost of production) and a $1.07 duty for countervail (governmental subsidies). A final decision on the complaint is due on or before March 15, 2006.

This new duty is likely to have a minimal affect on U.S. corn prices, but a major impact on Canadian corn prices. Last year, Canada imported 93 million bushels of corn, presumably, nearly all from the U.S. That equaled less than 1% of the 2004 U.S. corn crop, but 26% of 2004 Canadian corn production and 9% of Canadian coarse grain production. At $1.65 per bushel, this new duty is likely to stop the movement of unprocessed corn from the U.S. to Canada. An extra 90-100 million bushels on the U.S. market should push U.S. corn prices down only a few pennies per bushel. A shortage of 90-100 million bushels of corn in Canada has the potential to raise Canadian corn prices by more than a dollar per bushel.

Needless to say, the Canadian livestock industry is not happy about this new duty. A spokesman for the Canadian Cattlemen's Association estimated the duty could add $100 to the cost of feeding cattle in Ontario. The Canadian Pork Council estimates the duty could add up to $20 Canadian to the cost of producing a slaughter hog in Canada.

If the duty remains in place for more than a few weeks and if Canadian livestock producers are not able to pull an end run on the levee (perhaps by importing corn from China or importing sorghum, DDGS, or complete feed from the U.S.) then we should see a dramatic increase in the number of feeder livestock exported from Canada to the U.S.

The Canadian hog industry nearly doubled in size during the past decade. This new Canadian duty has the potential to make it shrink as fast as it grew.


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