Impacts of Farm Bill, Canadian PEDV Outbreak04 February 2014
US - It has been a tough couple of weeks for the Canadian and US pork sectors. Porcine epidemic diarrhoea virus (PEDV) has now been found in five Canadian operations and positive sample submissions in the US hit another new high with the week’s 215 samples surpassing the previous week’s 213, writes Steve Meyer in his latest 'Market Preview' published in National Hog Farmer.
And finally, the House of Representatives passed a US farm bill that contained language regarding neither country of origin labeling (COOL) nor the Grain Inspection Packers and Stockyards Administration (GIPSA) rule. Not a good week at all but what are the impacts?
First for Canada’s PEDV situation. The disease has now been confirmed in five locations in Ontario. According to the George Morris Centre’s Canadian Pork Market Review, only two of those operations involve farrowing, so those will likely be the only locations with significant death losses. The impact will most certainly be bad for those producers, and we must not forget that. Further, the US experience is that even with major effort, these will not be the last cases.
But we need to remember what determines prices in North America: Supply and demand in the United States. I always tell my Canadian friends – and I believe I do have some – that Canada is good and I love it much, but when it comes to the hog market, the US is the dog and Canada is the tail. Unless pig losses in Canada become extraordinarily large, there will be no impact on Canadian prices. The US PEDV situation is already large enough, I think, to impact prices on both sides of the border but the Canadian situation so far – and probably in as much as it ever will be – is a non-factor for prices.
On the mandatory country of origin labeling (MCOOL) front, George Morris Centre analyst Kevin Grier characterized it correctly when he headlined his story “COOL Window Closes.” The Farm Bill is not a done deal yet but it – sans MCOOL fix – is expected to pass the Senate this week and be signed into law by President Obama. Was the National Pork Producers Council (NPPC) right to oppose the Farm Bill at the eleventh hour over the omission of an MCOOL fix? I think so simply because the issue is so important to US producers. Add in the omission of prohibitions on future contract regulation by GIPSA and I think the situation was worthy of opposing. Whether it had much of a chance of succeeding is, to me, beside the point. There are matters of principle that are worth a fight.
But that is over. The window is closed and we must now ask “What’s next?” The immediate next step is the World Trade Organization (WTO) hearing on February 18 regarding the challenge of Canada and Mexico to the US “fix” rule that went into effect in November. WTO is expected to rule on the challenge this summer, and most observers expect it to find for Canada and Mexico. But George Morris Centre’s Grier says the US can appeal that ruling, pushing resolution of the situation well into 2015.
Whenever the deadline finally arrives, I still think US lawmakers will act to rectify the situation. At that point, the focus on animals imported FROM Canada and Mexico has to shift clearly to meat being exported TO Canada and Mexico. The two countries rank in the top four among markets for US pork muscle cuts, and top three among markets for US beef muscle cuts. Mexico is our largest pork by-product market in terms of both volume and value and is the largest-valued US beef by-product market. Until the critical moment of retaliation arrives, though, the impact of MCOOL will continue to be spread thinly over many pounds of retail product and thus not on the radar screens of either US consumers or US lawmakers. I just hope that the clear damage that retaliatory tariffs will have will get lawmakers’ attention. Given how poorly they have handled other critically important items the past few years, I fear there is no guarantee that it will.
But there is still good news. Lean Hogs futures contracts for May onward all established life-of-contract highs last week. Corn prices continue to move sideways. Meal prices are still high but are forming a pennant technical structure that suggests a move soon. The move could, of course, be upward but a downward move would likely take old crop meal into the $370-$375 range. Okay, that’s not MUCH good news but it is about the only positive thing I’ve been able to say about meal in months! This year will still be a good one for producers on both sides of the border in spite of some frustrating challenges.
As the sign in the Mannford, Oklahoma vocational agriculture classroom said: Pray for rain but keep hoeing!