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Canadian Corn Duty Waived

I'm a big fan of the TV show, Law & Order. In fact, I have watched so many episodes so many times (thanks to the miracle of satellite TV) that I can spot the soon-to-be-tainted evidence very quickly. You know the evidence I mean -- the DNA-carrying cigarette butt that is resting at a spot beneath the dead center of a king-sized bed or the bloody glove retrieved from a hermetically sealed bathroom medicine chest that could be found only with an x-ray machine.

The second that the TV cop shows it to his partner with an "I gotcha" grin, I know that those poor, put-upon district attorneys are going to have to make a case without that piece of evidence. Do these TV cops never watch TV? If they did, they would know better and we would not know nearly as much about legal technicalities and not have nearly as many anger fits at the judges who gleefully use them so much.

The point (and I bet you were wondering if I would ever get to it) is that technicalities come into play in legal proceedings. While perhaps not exactly using a technicality, Canada's International Trade Tribunal found this week that imports of U.S. corn had not injured the Canadian corn industry and thus ordered a halt to the $1.65/bu. (CAN$) duty. All duties collected since December will be refunded.

Interestingly, this is the same reason that the U.S. International Trade Commission last year struck down antidumping duties that the United States had imposed on imported Canadian feeder pigs and market hogs. Neither agency decided that subsidies had not been paid nor that product was not being dumped. They both simply concluded that regardless of what was going on, the action had not injured the respective domestic industries.

It appears that the Tribunal may have done us all a favor.

This is a huge win for the Canadian livestock sector. At a recent meeting in the United States, ag economist Ron Plain at the University of Missouri pointed out that Canada has five times as many cows and twice as many sows as it needs to feed itself. A supply of low-cost grain is rather important to a country in that position. Had the duty been allowed to continue, I feel confident that both sectors would have been much smaller five years from now, with cattle and hog feeding taking the biggest hit and the two packing industries being decimated.

In addition, this is a big win for U.S. livestock producers. The higher cost of feed in Canada was already having an effect on animal flows and that effect was going to grow. Imports of feeder pigs from Canada are up 16% this year. Those shipments were 6% smaller last year when there was no duty in spite of the fact that the Canadian-U.S. exchange rate was more supportive to exports.

Comparisons for feeder cattle imports to a year ago cannot be made due to the import embargo that was in place in 2004 and 2005. Year-to-date feeder cattle imports are over 60% larger than those of 2003, the last year in which imports were made during the January-April time frame. That may not be a good comparison, but it is the best we can do.

Imports of Canadian market hogs are less that 2% larger than last year, but have moved from as much as 6% below year-ago levels in February to above year-ago levels in recent weeks. I expected this number to jump in May when hogs could be shipped to the United States to garner a refund of the duty on any imported corn fed to them. Now, that will not happen, thereby reducing potential hog supplies in the United States

Again, it would be best for the United States and Canada to harmonize their farm policies. I'm not sure it can be done, given the vastly different situations from which the two countries would begin those negotiations, but any move toward a more common policy would help prevent these costly trade spats. Besides, the technicalities may not continue to save us!

Hog Market Encouraging
Things sure look better in the hog markets than just one week ago. USDA's average net prices from Friday morning's Prior Day Slaughtered Swine report (HG201) show significant improvement over last week. The average net negotiated price is $5.18/cwt. carcass higher than just one week ago, while the average net total price (includes contract purchases) is $4.44/cwt. carcass higher. Thursday's USDA cutout value was $3.50/cwt. carcass higher than one week earlier.

The cash rally has, as predicted, carried all Chicago Mercantile Exchange (CME) Lean Hogs futures contracts higher as well. The increases range from $3-$5/cwt., depending on the contract of interest, and show no technical signs of a slowdown. This rally should provide some pricing opportunities that you should consider carefully on at least a part of your third and fourth quarter production. August Lean Hogs are now within $1 of their contract life high and other contracts beyond June are all within reasonable reach of contract life highs.

You may be afforded a rare opportunity -- the chance to have passed on one good opportunity, and the chance to actually get another one.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.

TAGS: Nutrition