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CME: Just How Important are Import Bans?

by 5m Editor
29 April 2009, at 8:32am

US - CME's Daily Livestock Report for 28 April 2009.

To get a feel for what US pork producers and packers are going through, imagine that someone with the same name as you robbed the local bank and, upon his/her apprehension, your local newspaper included YOUR picture in the front page, above-the-fold story. A definite sinking feeling that makes you want to scream and cry at the same time, huh? That is about what the pork people have been through with swine flu/ North American influenza/Influenza A (H1N1) over the past few days.

That last moniker (Influenza A (H1N1)) is the latest name for the virus that has now been identified in people around the globe but not in a single pig that anyone knows of. In fact, no one knows yet if pigs will even contract the virus — though those experiments are no doubt ongoing.

It does not appear, though, that the press is picking up on the nonswine names to any great degree, so the industry is still fighting to get the message out that the virus is not transmitted through pork. Secretary of Agriculture Tom Vilsack finally made that statement today. No one knows for sure whether US consumers have reacted negatively but it is very likely. Both futures and cash markets have moved sharply lower the past two days. Nearby May Lean Hog futures were down $2.75 today after falling the $3.00 limit yesterday. June and July were down $2.35 and $1.78 today after limitdown moves yesterday as well. The weighted average price of hogs sold through negotiated trades in Iowa-Minnesota lost a combined $2.83/cwt the past two days. Assuming carcasses equal in weight to last week’s estimated barrows and gilts average (201 lbs.), and that the $2.83/cwt decline applies to all of the 826,000 head slaughtered this week, the price drop has already cost hog producers $4.8 million — or more, since a price rally has been expected.

Just how important are the import bans announced by our foreign customers? Not unimportant but none of them are as important as Mexico — which has not banned imports but where the most damage to our export demand may occur due to the name connection between pigs and flu. The table at left shows pork and pork variety meat exports to Mexico, Russia and China/Hong Kong through February. The last two countries are the most notable ones which have blocked imports from some states. Note that Mexico is MUCH, MUCH more important in about every way — volume of pork and pork variety meats, value of both classes of products, year-on-year growth. China/Hong Kong is an important factor in the pork variety meat market but readers should realize that over 75 per cent of the volume and value of pork variety meats going to China/Hong Kong have gone through Hong Kong and Hong Kong has NOT announced any ban on US pork products. Do you think product might still find its way to China through Hong Kong much as product from pigs fed ractopamine did last year? We think it is very, very likely. Russia is a growing market for US beef variety meats but represents only 7 per cent of the volume and 4.3 per cent of the value of ‘09 YTD shipments.

We know that “facts“ aren’t always what drives markets and that US consumer demand may indeed suffer. But the pressure on meat markets has every earmark of a panic based on emotion and psychology. An understandable panic, perhaps, but a panic nonetheless. We wouldn’t call the import bans “panics“, though. They are simply clear-headed decisions with no basis of fact — and the countries make them are no surprise.