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Pork Commentary: Country of Origin Labeling (COOL) Sanity Prevails

by 5m Editor
2 August 2007, at 8:14am

CANADA - It looks like a compromise was forged in the United States House of Representatives on Country of Origin Labeling. The compromise in our opinion will ease record keeping for all US pork producers compared to the insane initially proposed requirements. There will be four categories.

  • A US origin label would be for meat (pork) derived from animals “born, raised and slaughtered” in the United States.

  • Meat from animals born in another country, but raised and slaughtered in the United States, would be labeled products of the United States and the other country. (Eg. Canada)

  • Processed Products would be labeled with a list of countries from which they were derived.

  • Animals (Hogs) imported for direct slaughter to be labeled from the country in which they were derived. (Eg. Canada).
The bill goes into effect Sept. 30, 2008.

Observations

Packers have a tough job, they have to buy, cut up, process, buy shelf space and move a perishable commodity product while trying to make a profit. Looking at the list of COOL categories the easiest to fit all into the box is the second one. Products of United States and the other country.

There will be six million small pigs imported into the United States this year and these pigs have become an integral part of the U.S. production system for not only packers, but farmers, feed companies, veterinarians and all the other multiplier interactions of this economic activity. The new COOL category allows a relatively seamless solution to this economic reality.

-The big potential losers in the new COOL categories are Canadian producers sending market hogs for direct slaughter. This is a separate category and consequently a packer has to make a decision whether to label and keep such product separate. In our opinion maybe only two or three packers will make such a step. The costs and effort to do so will probably result in a lower price being offered for these market hogs. As usual the lobbying efforts of the Ontario Pork Producer Marketing Board came up short. All noise, no results. Chickens coming home to roost. When you put the former Chief Dog Catcher of Toronto in charge of your marketing system you get what you would expect. It’s really sad when the institutions that have been supported by generations of farmers become living symbols of incompetence.

Going forward we expect fewer market hogs going to the United States and we expect fewer market hogs in Canada. We expect in the future more small pigs going to the United States. Canada’s market hog production decline when rationalized will mean less reliance on pork exports and in a perverse way in a number of years it could even take away the export price discount now in the Canadian market.

At the end of the day if the consumer marketplace was clamoring for a “Made in USA” label on meat, someone would have done it by now. It would have happened for profit. The reality is consumers do not really care. Number 1 - they appear to have faith in our meat inspection system. Despite BSE, E-Coli, and Salmonella issues, consumption of Beef and Chicken never has wavered. Notice none of these issues were pork related. Number 2 – we are not a nation of Whole Food devotees. There is an elite segment of our population that has been sold by market forces on a so called better way to produce food. (Eg. Free Range – whatever that means). The main marketplace, as opposed to the niche fragment, can be found at Wal-Mart et al. They are consumers trying to get through life while raising a family with a need for healthy nutritional meat protein. Safety matters, but not at an unreasonable cost. The COOL compromise is livable for most of our industry but it is one of unnecessary government regulation that unfortunately will not help demand as few consumers perceive it as issue or concern.

China

Nothing really new on the China front, lots of conjecture but few facts. The market place (Lean hog futures) is counting on something big happening. October lean hogs closed Friday at 72.55. December 69.85.

Observations

China’s official swine Inventory on June 30 2007 was 476 million head. 0.15 of 1% lower than a year ago. (Certainly a lot of pigs to count)

China’s slaughter hog price was 19.32 yen a kilogram on July 20 - $2.56/ U.S. kilogram or $1.16/ U.S. lb.

China has the same number of hogs as a year ago and prices of $1.16/ lb. The National Pork Board better get over there fast and find out how they get that done. (Maybe the Chinese have a new “Other White Meat” program).

All kidding aside there is no way prices are more than double a year ago in China if there is not a heck of a lot fewer hogs. Probably in the millions fewer.

Why? Liquidation due to the Global price increase of feed (come on down U.S. corn ethanol production), disease – Blue Ear (PRRS) and we expect Circovirus. This week Chinese Veterinarian Authorities announced a new Blue Ear (PRRS) vaccine is working. Good news for China but from what we can observe PRRS vaccine has done little in North America but line the pockets of some drug companies.

We have had several calls from Hedge Funds in the last two weeks about the China Issue. Hedge Funds live on looking for opportunities.

The Chinese liquidation due to high feed prices is a phenomenon that is happening in many countries. This will ensure new normal for hog price plateaus and ranges. Every thirty years for the last 150 years there have been new hog price plateaus reached and held. What we have seen over the last three years of higher prices is the new normal for the next thirty, higher prices but also higher costs, including labor, building, energy, etc. The new normal of higher prices and costs are here to stay.

5m Editor