Market Preview: Ag Secretary Schafer Disappoints

US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.
calendar icon 2 August 2008
clock icon 5 minute read
Wednesday was a disappointing day for livestock feeders as the USDA once again turned its back on helping reduce the huge increase in livestock production costs. Secretary of Agriculture Ed Schafer announced that USDA would not allow penalty-free withdrawal of acres from the Conservation Reserve Program (CRP).

Schafer cited the recent fall of corn and soybean prices and the improving crop conditions as factors in his decision. “The strength and commitment of America’s farmers have made to meet the nation’s need for corn for food, feed and fuel have reassured the markets that there will be adequate supply available this year,” he added. Shafer also cited USDA’s decision to allow haying and foraging on 24 million CRP acres after the primary nesting season expires.

I’m sorry to be so cynical, but I would have thought that the Secretary of Agriculture could have figured out that releasing CRP acres now will do nothing for this year’s crop. Further, according to my nutrition classes, more hay will do little if anything to help non-ruminants. Finally, the secretary is correct that this year’s corn supply looks better and may be large enough to keep prices lower than once feared. But, shouldn’t government officials be looking a bit further ahead?

The most recent data I have seen from Iowa State’s Center for Agricultural and Rural Development suggest that we will have enough ethanol capacity to use corn at an annual rate of over 5.3 billion bushels per year by late 2009. That is nearly 1.5 billion bushels more than USDA is forecasting for the 2008-2009-crop year. While more acres will very likely be planted to corn next year, rising input costs that may drive corn planting cost to $600 or more will limit that growth.

In light of this decision, input cost risk will remain quite high through 2009-2010.

COOL Labeling Rules

USDA also released this week an interim final rule for mandatory country-of-origin labeling (COOL). The highlights include:

  • It does not apply to covered commodities produced and packaged before Sept. 30, 2008.
  • Animals in the United States on or before July 15, 2008, that remain in the United States will be considered of U.S. origin.
  • Foodservice establishments and processed food items are exempted from labeling. Examples include meatloaf, meatballs, fabricated steak, breaded veal cutlets, corned beef, sausage, breaded chicken tenders and teriyaki-flavored pork loin.
  • Labeling rules regarding ground meat require listing all countries of origin that may be reasonably contained.
  • Records must be maintained for one year and available within five days if requested by a USDA representative.
  • Slaughter facilities must possess or have legal access to records that substantiate their origin claims. A producer affidavit will be considered acceptable evidence as long as it is provided by someone having firsthand knowledge of the animals' origin and identifies the animals unique to the transaction.
  • The labeling requirement provides packers the flexibility to label animals born, raised and/or slaughtered in the United States, but not imported for direct slaughter, as “product of the U.S.,” and any other country in which the animal was either born or raised.
  • To label product as “product of the United States,” it must come from animals born, raised and slaughtered in the United States.

The total first-year implementation costs of COOL for all directly affected firms are estimated to be $2.5 billion. USDA’s breakdown is $376 for each producer, $53,948 each for intermediaries and $235,551 each for retailers.

Price Rally Continues

Pork cutout values and hog prices continued to rally last week – cutout values to year-long highs and hog prices quite near the yearly high. The two major drivers have been ham prices (near $90/cwt.) and 72% trimmings ($73/cwt.). Both cuts are usually driven by exports at this time of year. Whatever the source, we’ll take it!

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NOTE: Our normal Production and Price Data tables are not included in today’s North American Preview due to some technical difficulties. We apologize and certainly hope that the computers will be healed by next week!
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