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Uncertain effects of the countervailing duties

by 5m Editor
23 October 2004, at 12:00am

US Weekly Hog Outlook, 22nd October 2004 - Weekly review of the US hog industry, written by Glen Grimes and Ron Plain.

Ron Plain
Ron Plain

We still do not know what impact the countervailing duty will have on the number of live hogs we will import from Canada. We doubt it will have much impact in the short run. But Canadian packers will likely be able to buy the hogs on the spot market at about the amount of the tariff level below U.S. However, we believe a high percentage of the hogs in Canada are priced with a marketing contract. If so, the odds are high that the hogs priced on a marketing contract will not be impacted until the contracts matures.

We have reports that at least some of the US producers who buy Canadian feeder pigs are offering to split the tariff with the Canadian producers.

It is also uncertain how long the tariff will last. The Commerce Department will revisit the issue in the spring of 2005.

In General the tariff will amount to about 14% of the value of the animal. This would be $4-5 per head for isoweaned pigs, $6-7 per head for feeder pigs and $17-20 per head for slaughter hogs. The tariff does not apply to breeding animals.

How valuable to the U.S. this tariff will be in the long run is uncertain! Some observers believe the tariff will be negative to the US industry in the long run. The way it will be negative would be for the Canadians to increase their feeding capacity and slaughter capacity which would likely result in the feeder pigs now being fed in the US to be finished out in Canada and slaughtered in Canada. If so the US producers who now feed Canadian pigs would not have this economic activity nor would the US industry have the hogs to slaughter, which might result in the closure of a packing plant.

Lets hope that one result will be to stop the build-up of the Canadian breeding herd.

Slaughter for the last two weeks has moved back to about 2% above a year earlier. The estimated Federally Inspected Slaughter number for this week was 2167 Thousand head --- up 3.4% from a year ago.

Even with the larger slaughter this week hog prices have held steady and this Fridays prices were up compared to last Friday. Cash hog prices this Friday morning were from $0.75 to $3.00 per cwt higher than 7 days earlier. Carcass prices were $0.07 lower to $2.04 per cwt higher compared to a week earlier on Friday Morning.

The top prices for live hogs this Friday morning were: Peoria $46.50 per cwt, St. Paul $51.00 per cwt, Sioux Falls $52.00 per cwt and interior Missouri $48.00. The weighted average prices for 185# carcasses with 0.9 - 1.1" back fat, 6 square inch loin 2" deep by area were: western Cornbelt $69.06 per cwt, eastern Cornbelt $66.88 per cwt, Iowa-Minnesota $68.81 per cwt and Nation $68.28 per cwt.

Pork product prices this week were pushed lower with the larger slaughter. This suggests packers margin have deteriorated and the odds are high that prices for hogs will be under pressure again next week.

5m Editor