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Pork’s Part in the Farm Bill

The 2008 farm bill continues to slog through Congress. The bill is still in conference committee where conferees from both houses are trying to work out the differences between their two versions. If and when those differences get ironed out, the conference report will go back to both houses for an up-or-down vote with no amendments allowed.

There are still some substantial differences in the two versions, primarily revolving around funding and what many view as “juggling the books” to make the costs and revenues work. It does not appear that the Bush administration is buying much of that. A veto threat still hangs over the entire proceedings.

The farm bill contains several features directly related to hog and pork markets and marketing. They include:

  • Changes in mandatory country-of-origin labeling (MCOOL).

    • Provision for a multi-country label that would cover animals that originate in Canada and are slaughtered in the United States. Product from any animals born in Canada, whether they were fed in Canada or in the United States would be labeled “Product of Canada and the United States.” There is some flexibility in how the rules (i.e. the actual operating instructions of the law) will be written, so it is not completely clear what the labels will say or just how much flexibility will be provided for packers, processors and retailers.

    • Provisions for a “May contain product from ____“ label on ground meat, where all of the countries from which product may reasonably come are listed. This is a big deal for ground beef.

    • MCOOL verification records limited to those kept in the “normal conduct of business.”

    • A hard date to establish animals from which product may be labeled “Product of the United States.” The trouble is that this currently reads Jan. 1, 2008. It is very likely that conferees will change this date – probably to July – due to the delays in getting the bill through.

  • A provision to fund a study of mandatory reporting for wholesale pork cuts. The small percentage of pigs (around 10%) for which prices are negotiated each day has driven interest in improving the quality of USDA hog cutout value – which is based on wholesale pork cut prices. The problem is that the voluntary system for wholesale pork reporting has resulted in low reporting of an already thinly traded market. The Secretary of Agriculture has the authority to do this. The Farm Bill just calls for a study. Many in the industry think this should be used to lay the groundwork for a system similar to that being used for beef.
There were also a couple of items that were omitted in the Senate version of the bill. Most notable is the deletion of the ban on packer ownership, which has long been championed by Senator Charles Grassley (R-IA). Producers have differing opinions on this topic, but I believe a large majority opposed it due to the very real possibility that the provision would have been used to outlaw marketing contracts. This is the second time that Senator Grassley and his colleagues in the Senate have put the provision in a Farm Bill and the second time that it has been taken out in conference.

The second item deleted was a change to the mandatory price reporting system that would have delayed the afternoon reports. The idea was promoted as a way to capture a larger proportion of the hogs priced on a given day in order to reduce the possibility of manipulating prices, especially on formula-priced pigs. No one knows just how much the delay might have accomplished, but I believe the gain would have been small.

Rules to enact the mandatory price reporting system changes made in 2006 will apparently finally be published – maybe. The system was reauthorized in October 2006 for a 5-year period, so by the time the rule is published, the effective period will be down to less that 2.5 years. The deadline for packers to report prior-day slaughter data will be changed from 7 a.m. to 9 a.m. No change will be made for prior-day purchase data since those data are more critical for knowing the current market situation. In addition, the definition of a pork packer will be changed to expand the coverage of those that slaughter sows and boars.

John Reddington, vice president of the American Meat Institute (the meat packers’ trade association) told attendees at the National Pork Board’s Pork Management Conference that the export situation with Russia might get worse. Russia delisted four U.S. plants the week before last for allegedly excess residues of tetracycline. The announcement came the day before Russian officials left on Easter holiday. They will return on Monday and there are rumors that up to 12 more plants will be delisted.

One problem is that U.S. officials do not know the levels of tetracycline actually found by Russian inspectors as no one has been in Moscow to tell them. Russia’s tolerance level for tetracycline is very near zero. All we currently know is that some greater level was apparently detected.

I commented last week that I wasn’t worried about this situation unless it spread to more plants. Delisting four plants leaves plenty of opportunities to ship pork to Russia. Delisting 16 plants will be much more problematic. We need exports to keep humming along!

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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: [email protected]