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CME: Mexico's 'Christmas Gift' to USDA

by 5m Editor
29 December 2008, at 12:42pm

US - CME's Daily Livestock Report for 26 December 2008.

Mexican officials left a nice Christmas present under the USDA tree earlier in the week as they suspended pork, beef, and poultry imports from a number of US plants. While the suspension does impact some beef and turkey exports to Mexico, pork appeared to be the most affected as Mexico de-listed some of the largest pork packing plants in the country, including the Smithfield Tar Heel plant, which according to the latest analysis from Steve Meyer, accounts for about 7.5 per cent of overall US hog slaughter capacity.

Using the slaughter capacity information from Steve for 2007 and the USDA list of plants eligible to export product to Mexico, we calculate that about 45 per cent of overall US hog slaughter capacity is now ineligible for export to Mexico. The four Smithfield plants that were suspended accounted for more than a third of the overall suspended capacity, while the three suspended Tyson plants accounted for another 27 per cent. Again, based on the 2007 capacity calculations, we estimate that 60 per cent of the total Smithfield slaughter capacity and 70 per cent of the total Tyson slaughter cannot be shipped to Mexico at this time. Production from the Triumph Foods and Seaboard plants also cannot be shipped to Mexico at this time. In addition, some processing facilities were also delisted and are ineligible to ship until further notice.

Immediately after the news broke, market participants were quick to point out that the Mexican action likely has its roots in the country of origin labeling (COOL) law that came into effect in September. Only a couple of days before issuing the suspensions, Mexico filed a formal complaint with the World Trade Organization (WTO) over the COOL issue and for the next 60 days Mexican officials will begin a series of consultations with their US counterparts. One cannot blame those in the market for seeing a link between the two and suspecting that Mexico is trying to impress upon the US side that trade is a two way street.

According to news reports, both USDA and Mexican officials have denied that the recent wave of suspensions was due to COOL, but rather various non compliance issues. The US Meat Export Federation (USMEF) notes that Mexican officials usually will delist a plant after two point of entry violations. USMEF and USDA have been working with Mexican officials to remedy some of the earlier point of entry violations, which makes the recent Mexico delisting rather surprising. While many expect the suspensions to be brief, it still presents a challenge to the market, especially in the short term as product destined for export now needs to be sold in the domestic market.