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Pork Commentary: Mexico Strikes Back

by 5m Editor
30 December 2008, at 8:47am

CANADA - This week's North American Pork Commentary from Jim Long.

At the end of last week, Mexico delisted 39 US Pork Plants from having access to the Mexican Domestic Market. From all indications the delisting was a retaliation for US Country of Origin Labeling (COOL) which has caused severe hardship on the Mexican Feeder Cattle exports to the US. The US pork plant delisting came a week after Mexico had launched a complaint at the World Trade Organization against US Country of Origin Labeling. The Pork plant delisting will put extreme pressure on US hogs as Mexico is the United States’ number one market.

Last year, Mexico sold more than 870,000 head of live cattle to the US to be partly raised and then processed into meat. Mexico’s sales of live cattle have fallen far below that this year.

What we have is an escalation in trade issues. The US Country of Origin Labeling has caused hardship for livestock producers in both Canada and Mexico. Mexico has decided to retaliate. We understand Canada is pondering its move if there is no US compromise. Canada imports more agriculture products from the USA then vise versa. Unfortunately, when Government’s get involved in the marketplace it always seems to become market distorting and many times this is not for the good.

Hogs and Pigs Report

Tuesday, 30 December, the US Hogs and Pigs Report will be released. We expect much of the same attrition in the breeding herd and lower market inventory. We estimate the breeding herd will have declined 50 – 60,000 from September 01 and be down give or take 4 per cent year over year (about 225,000 – 250,000). We need a positive shot of news. Iowa – Minnesota last Friday was 49.13 lean and we suspect many farrow to finish producers have breakevens of 70 -75 cents lean currently. When you put the numbers together, losses are a per head basis of $35 - $50. Nasty! It’s been too long losing money and the equity hole is getting deeper.

The corn and soybean price unfortunately also seems to be gaining strength give or take $1.00 a bushel higher than the contract lows reached a few weeks ago. If there is an upside and we are reaching for these higher corn prices it will encourage spring plantings when coupled with lower fertilizer prices. Also, higher corn prices must be giving the corn ethanol plants (food burners) big indigestion on their breakevens.