Prop 12, WASDE and the cost of free puppies or trucks

Update from California Department of Food and Agriculture on Prop 12 enforcement.

Joseph Kerns

May 15, 2023

6 Min Read
Oleksii Liskonih-GettyImages

Partners for Production Agriculture Correction on Prop 12 enforcement:

After communication today (Tuesday, May 16) with Dr. Elizabeth Cox, animal care program manager for California Department of Food and Agriculture, we learned the following:

  1. The date at which the definition of "housed in a cruel manner" changed was Jan. 1, 2022. That is in the statute.

  2. The court's stay was on enforcement of Prop 12, not the effective date of Prop 12. By that court order, enforcement was initially delayed to "180 days after the publication of final rules." Final rules were published Sept. 1, 2022 so enforcement could have commenced on March 1, 2023. The parties to that lawsuit and the court agreed to delay that date to July 1, 2023 given the pending SCOTUS case. 

  3. Enforcement will begin on July 2, 2023 according to Dr. Cox. Since the definition of sow housing changed 18 months ago, no product or pigs will be "grandfathered in."  All product sold in California beginning July 2, 2023 must be from sows housed in a manner compliant with Prop 12.

Dr. Cox did say that CDFA's focus over the next seven months will be on getting sellers and suppliers certified per the requirements of the Prop 12 rules. 

By now you have heard and read enough about the Prop 12 ruling from the Supreme Court to form an opinion of what this legislation means to you. It seems to me that we have one of two options:

  1. Accept the ruling, discern its impact and move on.

  2. Take an inventory of resources, evaluate the potential opportunity for success and decide whether or not to fight the ruling.  

I always have some of my preferred political candidates lose in every election cycle and life seems to roll on without the world falling apart. I suspect this one will be similar. Unless we deploy the resources to fight the findings and get Prop 12 overturned, we will incorporate it into our business plan and it will become something we just get used to. Kind of like moving from leaded to unleaded gasoline back in the mid-70s. Some people (my dad included) took out the catalytic converter and refused to adhere to the new rules. By the time we owned the second or third car that burned unleaded fuel, we stopped fighting the system and complied with the law. Life moves on. And so it will be with this new inflection point in pork production. 

Do we have enough production right now to plug-and-play in this new environment? Nope. Several in our industry have pontificated that we are roughly halfway to having enough sows under the prescribed production criteria to meet current California consumption. We likely have more than enough sows utilizing open pen gestation that could be converted to Prop 12 production if the economic incentives were in place.  Hence, the date of implementation combined with the potential monetary considerations provide enough time to answer some additional questions. We do not know everything today and, fortunately, we do not have to know everything right now – there is time to figure it out and we will continue to evaluate the opportunities. 

Of bigger concern to me is the transition of the Windom facility. This would be dominating our conversation if it were not for the Prop 12 news. As the numbers look right now, the utilization of this plant could be the swing factor this fall between having enough shackle space to be comfortable and being a bit snug. 

Amidst the cacophony and consternation associated with the Prop 12 ruling, the USDA quietly released their new crop supply and demand tables for the 2023/24 year. This was our first look at the balance sheet in this form — we had a pretty good guess at yield from the February forum and the acres from the March 31 planting intentions — this was the first time everything was put together in one place with disappearance incorporated into the equation. 

The result: a report that should have rocked our world and didn't. Those of you staring at the screen upon the release of the report may have thought there was a technical glitch or something, the market did absolutely nothing in the immediate aftermath of the report. It did eventually give ground as the numbers suggested it should do, but in a very measured fashion. 

So what do you believe? The matrix from the USDA indicating lower prices on the horizon or the response from the trade community that suggests otherwise? When you get a contrast like this, it is almost always a good idea to pay more attention to the quote screen rather than the USDA numbers. The trade had largely incorporated a balance sheet similar to what was published and had moved on to new information. The Black Sea corridor difficulties in addition to questionable corn acreage numbers in North Dakota in addition to a weather forecast that is volatile all combined to provide a modicum of support to the market that belies the face value of the USDA figures. 

A tight-fisted U.S. farmer is not likely to let go of his old crop bushels without a fight. This has led the July corn option back toward the $6 figure where it has seemingly found gravitational pull. Soybean meal has found a bid to some unlikely export destinations as the U.S. continues to find interest in the wake of Argentina production woes. This is probably a temporary item – just the old crop – and should not perpetuate into the larger production associated with new crop.

So what about the reference of free puppies in the title line of this note? Most of the time, the seller of an item is more aware than the buyer of the value of an item. Some of the most expensive things that I have ever owned started off as free. This has proven true with my current pet that has required two surgeries as well as a recently-departed firetruck that was a maintenance beast and a labor of love. The general goal of owning a dog or a fun vehicle is not to earn a return, it is to enjoy the journey of the time you spend together.  

Not so when considering the purchase of a weaned pig. You are generally doing the math and will only engage if there is a reasonable opportunity for an acceptable return. Which leads us to the current plight in the hog market. Given the futures market for projected revenue and in light of the cost to house and feed an animal, the value of the wean pig is at or near zero. 

We have been here before and is not good. We generally do not stay here for long. The financial duress of 2023 is going to leave a mark on balance sheets, those that choose to hang on (even in the face of Prop 12 consternation) look to enjoy a much brighter 2024. 

Finally, the CRISPR pig has achieved another milestone on the path to becoming reality via limited FDA approval for human consumption for the product. I was told it tasted delicious.  

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