Uncertainty is a bad thing for a business climate. The uncertainty of capital markets is largely responsible for the spasms (as my friend John Ginzel calls them) that are going through the equity markets these days. And the uncertainty of mandatory country-of-origin labeling (COOL) and its impact on packers’ procurement plans is apparently causing spasms in the Canadian feeder pig and weaner pig industry as well.
I still believe this situation will work out over time and that U.S. packers will buy Canadian-born pigs, primarily because they cannot do without seven million market animals. I also believe that U.S. feeders will buy young pigs since U.S. packers will buy them and, ultimately, that Canadian farrowing operations will produce them. But getting from this current state of uncertainty to that point may have its own “spasms”.
Canadian journalist Bruce Cochran quoted Manitoba Pork Council Chair Karl Kynoch this week, saying: “There are a lot of weanlings that don’t even have homes anymore.” It was a reference to U.S. buyers’ backing away from Canadian pigs. Imports of Canadian feeder/weaner pigs indeed fell last week to just over 100,000 head from nearly 120,000 head the week before (See Figure 1). Canada’s Thanksgiving celebration on Oct. 13 played a role in that decline, but the week’s total was 19% lower than one year ago and only 1% larger than the five-year average.
I have to agree with Mr. Kynoch’s statement that this disruption, though I think it’s temporary, will drive more Canadian sows out of production. Canada’s producers have been through difficult times and many simply do not have the financial wherewithal to stand another hit.
Canada’s October Hog Statistics report is due out next week. It will not reflect this most recent pressure, but it should be watched closely to see if the July breeding herd number (which I and nearly every other analyst that I know thought was far too high) is revised downward. Watch for discussion in next week’s North American preview.
U.S. Markets Bare Watching, Too
U.S. hog markets remain on the retreat this week as turmoil in world financial markets continues to spill over into agricultural markets, primarily via heightened concern about meat demand, in general, and export demand, in particular. The rate of U.S. pork export growth slowed in August, but remained 57% higher in volume (product weight) and 64% higher in value than one year ago. Those are far short of the virtual doubling of exports in April through July, but it still leaves year-to-date exports up 68% in volume and up 62% in value (see Figures 2 and 3).
But there are ample reasons for concern. First, prices of trimmings and hams have fallen sharply since August, when they led a surge in U.S. cutout values and hog prices; 72% trimmings are down 54% since August 15 and 42% trimmings are down 62%. Ham primal values are 43% lower at a time of year when they are usually, at worst, holding steady and, at best, increasing gradually as holiday ham needs are filled.
The latest pork export data available are for August, but weekly beef export data are troubling to say the least. More on that later.
Altin Kalo of Steiner Consulting Group, writing for Chicago Mercantile Exchange (CME) Group’s Daily Livestock Report this week, pointed out that beef exports have fallen from about 15,000 metric tons/week in August to just 7,000 MT last week. The largest contributor to that decline was a roughly 75% drop in shipments to Mexico, our heretofore largest beef customer this year. Shipments to Korea and Japan have also fallen, even though the Japanese yen has held up to the rising U.S. dollar much better than most currencies.
Why don’t we have weekly pork export data? Because producers and packers did not ask for it as part of the Livestock Mandatory Reporting Act of 1999. Beef producers and packers did. The pork industry discussed this long and hard, but eventually felt that weekly data would provide more helpful information to our competitors than it would to the U.S. industry. I was part of those discussions and, right or wrong, agreed with that viewpoint. In hindsight, it would be nice to have the data so we could know more about current market conditions. That can still be done if the industry decides it would be beneficial.
Finally, pork in cold storage as of Sept. 30 increased by 5% relative to last month and 4% relative to last year. Ham stocks are up 13%, year-on-year, while belly inventories are down 33% from last year. Rib inventories are 15% higher as well, likely reflecting the slowdown of foodservice trade as the economy softens.
More Meat in Storage
Perhaps more concerning is the level of all meats in storage. In addition to the growth in pork inventories, chicken inventories were up 16% from last year and up 1% from last month, while beef inventories were 9% lower than last year, but 2% larger than last month. Perhaps most notable was turkey stocks that are 22% higher than last year – a fact not conducive to much recovery in ham pricing during the holidays.
Total meat and poultry in U.S. freezers, at 2.357 billion pounds, reached the highest level since October 2002 (see Figure 4) when near-record stocks of pork and chicken and record stocks of beef sent inventories to a record 2.527 billion pounds. The Sept. 30 total is 1% higher than last month and 9.2% higher than last year.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.