CME: No Good News for Livestock, Poultry Producers05 July 2012
US - A little bit about a lot of things. Sorry, but none of them are good for livestock and poultry producers, write Steve Meyer and Len Steiner.
- Soybean meal futures hit a new all-time high today with the nearby July contract hitting $457.50 per ton (a record-high high) before closing at a record-high close of $454.10. The weekly continuation chart appears below. Both figures broke records set the week of 11 July 2008. For what it’s worth, that July contract went off the board three weeks later at $388.30, over $65/ton lower. The nearby contract was down by $100 by 4 August 2008 and went below $300/ton by the end of September 2008. None of this means this will happen in 2012 — but it underscores that things can change in a hurry if the right conditions prevail.
- Continued dry, hot weather has a number of analysts dropping their corn yield estimates rapidly. A poll conducted and published by Reuters this week pegs the 2012 yield at 153.4 bushels per acre, down 3.9 bushels or 2.5 percent in just the last week. Even more sobering, Allendale Inc. research director Rich Nelson says current July weather forecasts will push the national yield down to nearly 145 bushels per acre. That would be over 2 bushels lower than LAST year. This all comes on the heals of last week’s 8 per cent drop in the proportion of acres rated in either good or excellent conditions. Last week’s 48 per cent is the lowest rating for week 26 since 1988, the last widespread, severe drought in the US Cornbelt.
- The United States’ lost its appeal of the World Trade Organization’s
(WTO) finding that mandatory country of origin labeling
(MCOOL) violates WTO trade rules. That is no surprise to
many industry observers, ourselves included. The WTO Appellate
Body said MCOOL provides “less favorable treatment
to imported Canadian cattle and hogs than to like domestic
cattle and hogs.” Specifically, the Body pointed out that
MCOOL imposes recordkeeping and verification requirements
that cause a disproportionate burden on upstream producers
and processors of livestock relative to the information conveyed
to consumers or retail meat products.
Both the National Pork Producers Council and the National Cattlemen’s Beef Association issued tactfully worded statements to the effect of “We told you so a long time ago!” Both groups fought MCOOL from its inception in the 1990s because they believed MCOOL would put our trade relationships with Canada and Mexico in jeopardy. Those fears may now be realized.
Mexico and Canada ranked 2nd and 4th, respectively, among US pork export markets in terms of volume in 2011. They ranked 2nd and 3rd, respectively, in terms of pork export value. They were the top two markets, again respectively, for both volume and value for US beef in 2011.
The great irony is, or course, that the owners of the vast majority of cattle and hogs in the US opposed MCOOL from the -go but now face the possibility of retaliatory tariffs on their exported products. Note that we said “the owners of the vast majority of the cattle and hogs” not the majority of owners. MCOOL was a popular idea among many small producers of both species and was especially supported by many northern beef cow operators. If put to a “person” vote, the results might be interesting.
The US has 15 months to get into compliance. One quandary is what to do about MCOOL relative to the WTO ruling. The best solution would be to re-write the MCOOL rules to address the issues raised by the WTO. But whether that can be done and still meet the requirements of the MCOOL enabling legislation is a matter of debate. At least one Canadian group has called for a return to the concept of substantial transformation to determine a product’s country of origin. That was the principle applied before MCOOL came along and it resulted in products derived from imported feeder and slaughter animals being considered product of the US.
- The Thomson Reuters/University of Michigan Index of Consumer Sentiment fell 6.1 points to 73.2 in June, its lowest level since December. To be fair, we must note that the May index of 79.3 was the HIGHEST index level since October 2007 so this decline, though large, is from a relatively high level. The Consumer Expectations and Current Conditions indexes fell by 6.5 and 5.7 points, respectively, in May meaning both contributed about equally to the decline of the overall index. Lower expectations of financial improvement among households with incomes of $75,000 or more was a primary negative factor.
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