Market risks seen

Market risks seen

- Producers face threats ranging from COOL to furloughed inspectors. - Hog markets may have bottomed and start to rise. - Eggs gain 26

POTENTIAL threats to the livestock and poultry markets were everywhere last week, the greatest of which was possibly the language proposed by the U.S. Department of Agriculture to bring country-of-origin labeling (COOL) law into compliance with the World Trade Organization.

The proposal will almost certainly invite retaliatory measures by Canada and Mexico against U.S. beef, pork and poultry; Canada, in fact, already indicated that it was putting together a list.

The COOL rule was established in the 2002 farm bill and implemented in the 2008 farm bill. It requires that all fresh beef, goat meat, lamb, pork, chicken seafood and ground meat marketed in retail stores be labeled as to the country or countries of origin of the animal or animals from which the product was produced. It also covers fresh fruits and vegetables and certain kinds of nuts.

It does not apply to processed foods or to foods served in the foodservice sector.

COOL decreases demand for Canadian and Mexican livestock in the U.S. because packers must bear additional costs to segregate the imported animals from U.S. livestock, and Canadian and Mexican livestock are purchased only at discounts, often deep discounts.

Accordingly, the Canadian and Mexican governments joined in a complaint to WTO in 2009, arguing that COOL represented a non-tariff, unfair trade barrier -- a complaint with which WTO agreed and then upheld the ruling after the U.S. appealed (Feedstuffs, Nov. 23, 2009; May 30, 2011, and July 9, 2012).

USDA proposed to bring COOL into WTO compliance by creating a label that identifies where a covered meat product is born, raised and slaughtered, e.g., beef from cattle born in Canada and raised and slaughtered in the U.S. would be labeled as "Product of Canada and the U.S." Beef from cattle born and raised in Canada and slaughtered in the U.S. would be labeled as "Product of Canada."

The proposal does nothing to address the issues Canada and Mexico included in their WTO complaint and, if anything, actually increases the discrimination against their livestock, according to Feedstuffs sources.

Canada and Mexico will likely retaliate with tariffs, and U.S. beef and pork will likely be prime targets, according to Steve Meyer and Len Steiner, who analyzed the situation in an edition of their "Daily Livestock Report" last week.

They noted that U.S. beef and pork are directly involved in the dispute, have significant value for U.S. producers as exports to Canada and Mexico and have "pretty effective lobbies" in Washington, D.C.

Mexico and Canada, respectively, represent the largest and second-largest export markets for U.S. beef and the second- and third-largest export markets for U.S. pork.

If WTO finds that USDA's proposed fix is not sufficient -- and bets are that it will not be -- these two U.S. markets "are in grave danger," Meyer and Steiner said.

The danger was evident last week after Canadian Agricultural Minister Gerry Ritz warned in a statement that USDA's proposal "will increase discrimination against (Canadian) exports of beef and pork and will increase damage to the (Canadian livestock sector).

"Our government will consider all options," including retaliatory steps, should the proposal go forward, he said.

What's interesting is that COOL has done nothing to support the U.S. beef and pork sectors, as its advocates proclaimed that it would, agricultural economist John Michael Riley at Mississippi State University noted last week.

He cited a joint study by Kansas State University and Oklahoma State University that found no noticeable increase in consumer demand for U.S. beef, pork or chicken and no noticeable increase in prices for meat or livestock and found that two-thirds of U.S. consumers don't even know a COOL rule exists (Feedstuffs, Dec. 10, 2012).

 

Sequester threats

A second threat is USDA's decision to furlough meat inspectors for 11 days on successive Mondays from mid-July through September as part of the sequestration requirements for the Food Safety & Inspection Services. USDA suggested that the plan would minimize disruption to the meat industry.

However, it could create spotty meat shortages, and it most certainly would back up livestock and poultry on the farms, increasing costs of production to feed the animals for longer and reducing their value as packers tend to lower prices when producers have to move backed-up production, sources said.

A third threat is USDA's decision last week to suspend the publication of a number of data reports -- including the midyear cattle inventory and milk production reports -- as part of the sequestration requirements for the National Agricultural Statistics Service. The reports would be suspended through the government's fiscal year, which ends Sept. 30.

USDA said its decision was based on requirements to save money while "maintaining the strongest data service to agriculture."

Analysts' reaction to the cattle inventory report were mixed because it's seldom a market mover but still provides cattle industry decision-makers with important information.

However, dairy economist Katelyn McCullock at the Livestock Marketing Information Center in Denver, Colo., said the absence of the milk production reports means there will be "absolutely zero" production data available from USDA for one of the most perishable of agricultural commodities, "whose price is highly sensitive to small changes in supplies."

Finally, USDA's March 8 supply and demand estimates continue to show how much the meat and poultry supply has been reduced since 2008 and the impact of that on price inflation for animals at plants and meat and poultry in retail stores (Tables 1-3). This will continue to pose threats to consumer demand, sources said.

 

Market roundup

In the livestock and poultry trade last week, cattle did not trade in sufficient volume through Thursday to establish prices and, at week-before levels, were $128.00/cwt. north and south, 1.2% higher than at this time last year.

The hog markets were mixed, down $1.74 in the western Corn Belt and up 37 cents in the eastern region at $73.53-74.41/cwt. on a lean carcass basis last Thursday, equivalent to a $56.00 live cash hog market and 14.1% lower than year ago.

Analysts said they believe hogs are at a bottom in the market and will begin increasing as pork starts to experience "value demand."

Analysts also said China is struggling with swine disease problems, with "thousands" of dead pigs discovered in rivers in one production region last week, is struggling with food price inflation and knows that the U.S. has a large supply of competitively priced pork. China will find a way to deal with its ractopamine position to buy U.S. pork, sources said.

The egg markets were up another 12 cents and have now increased 26 cents since mid-February to $1.33-1.37 and $1.23-1.25/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 18.4% higher than year ago.

Sources said demand from restaurants and retail stores was improving rapidly for Easter on March 31, and offers were just light to moderate as producers were inventorying and rotating product.

Central states breaking stock increased 7-8 cents to 71-74 cents/doz., 27.2% more than year ago.

The chicken markets were steady and unchanged across the complex. Sources said supplies were tight.

The turkey markets were steady and unchanged. Sources said demand was light and will remain so until after Easter, although plants were making frankfurters for this summer.

In the dairy markets, butter and cheese increased last week on demand for Easter and expected increased demand for exports, sources said.

 

1. Dairy, meat and poultry production

 

 

 

Total

 

 

Total

Total meat/

 

 

 

Beef

Pork

meat

Chicken

Turkey

poultry

poultry

Milk

Eggs,

Year

-Billion lb.-

bil. doz.

2008

26.561

23.347

50.225

36.908

6.246

43.712

93.397

190.0

6.403

2011

26.195

22.758

49.232

37.202

5.791

43.514

92.746

196.2

6.590

2012

25.913

23.251

49.437

37.039

5.967

43.523

92.960

200.3

6.695

2013

25.110

23.375

48.755

37.925

6.175

44.610

93.365

201.9

6.780

2013 as % of 2012

96.9

100.4

98.6

102.4

103.5

102.5

100.4

100.8

101.3

2013 as % of 2008

94.5

100.1

98.6

102.8

98.9

102.1

100.0

106.3

105.9

Note: Eggs are table eggs as reported by the U.S. Economic Research.

 

2. Meat and poultry per capita consumption (supply)

 

 

 

Total

 

 

Total

Total meat/

 

 

Beef

Pork

meat

Chicken

Turkey

poultry

poultry

Eggs,

Year

-Lb.-

number

2008

62.7

49.4

113.5

83.4

17.6

101.0

215.9

248.3

2011

57.3

45.7

104.3

82.9

16.1

100.4

204.6

247.7

2012

57.4

45.9

104.5

80.4

16.0

97.8

202.2

249.7

2013

56.1

46.1

103.4

82.5

16.7

100.5

203.9

251.6

Note: Meat and poultry consumption is retail weight basis.

 

3. Meat, poultry, milk and egg prices

 

Steers

Hogs

Chickens

Turkeys

Milk,

Eggs,

Year

-$/cwt.-

-Cents/lb.-

$/cwt.

$/doz.

2008

92.27

47.84

79.7

87.5

18.29

1.28

2011

114.73

66.11

79.9

102.0

20.14

1.15

2012

122.86

60.88

86.6

105.6

18.51

1.17

2013

128.50

63.00

95.00

101.5

19.30

1.17

Note: Steers are average of all grades. Hogs are liveweight basis. Prices for 2013 are at midpoint of ranges,

Source for Tables: USDA "World Agricultural Supply & Demand Estimates."

 

Volume:85 Issue:11

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