CME: Positive News for US Meat Sector

US - Steve Meyer and Len Steiner report that the US meat sector received positive news (yes, that says “positive“ for a change!) on two fronts today with reports that China will soon renew imports of US pork and Taiwan will soon ease restrictions on imports of US beef.
calendar icon 30 October 2009
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The news buoyed CME Group Lean Hogs futures, pushing prices to levels not seen since July. The Taiwan news did little to help CME Group Live Cattle and Feeder Cattle futures as all listed contracts fell — seemingly in spite of several positive developments.

US Trade Representative Ron Kirk and Secretary of Agriculture Tom Vilsack announced the Chinese decision in a morning press release. The decision to stop imports of US pork was made in May, supposedly due to concern about H1N1 influenza. That, of course, was a red herring as China was looking for leverage in a dispute over exports of cooked chicken to the US Those had been blocked by Congressional action in 2007 that prevented USDA from even doing a risk assessment of the proposed shipments. Congress reversed that action three weeks ago and, lo and behold, China is apparently no longer in fear of H1N1 influenza. Isn’t it interesting how that works?

China and its “Special Administrative Region” Hong Kong were major players in the surge of US exports last year. As can be seen in the chart below, the two destinations accounted for 30 per cent of US exports in June and averaged 17 per cent, about 3 times their historical share, for the entire year. While the H1N1-related blockage by China has hurt business this year, it should be noted that thinks were not exactly rollicking along before that early May announcement. Shipments through April were down 75 per cent for China and 54 per cent for Hong Kong. We had expected shipments to Hong Kong to grow sharply in the wake of China’s announcement as product was “back-doored” into Chinese markets. They did, in fact, increase but did not do so by anywhere near enough to make up for the loss of trade with China.

This is, no doubt, good news for the US pork industry but don’t expect 2008’s “happy days” to return. China has rebuilt a substantial part of the hog herd losses it suffered in 2005 and 2006 when “blue ear” disease, a major earthquake and two harsh winters caused large death losses. The Olympics are no more than a glorious memory so the world’s attention is not nearly as focused on China and their humming economy has slowed a bit. About the only factor that was in play last year that is again in play is the weak US dollar — but that has less impact in China than in other export customer countries since the renminbi is pegged to the US dollar. Its value only changes when China’s leaders want it to change — or are forced to change it. As can be seen in the following chart, the renminbi has remained constant visà- vis the dollar since mid-2008 after being allowed to gain about 17 per cent in value from July 2005 through July 2008. What will happen when it is someday allowed to float on world markets?

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