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The Year in Review

Those of you who saw my review of the December Hogs and Pigs Report quickly gathered that I don’t think much has changed since last quarter. For that matter, as I write the semi-required “year in review” piece for 2005, I get the same feeling – not much has changed.

Consider that one year ago, the North American pork industry looked back in some degree of amazement at how good hog prices had been (especially in the fourth quarter), then looked ahead with a great degree of trepidation, knowing full well what high hog prices have meant in years past.

I think I can say virtually the same thing today. While hog prices haven’t been nearly as good in 2005, they have held in there pretty well, especially in the fourth quarter when many of us felt we would see red ink for average producers. In addition, my skepticism of the December Hogs and Pigs Report is due to what high prices have caused in the past. Now, with two years of good prices, my skepticism hasn’t been alleviated.

There is scant evidence of rapidly growing supplies. Yes, I think hog slaughter will grow in 2006 and I think weights will add to that growth to provide 2-3% more pork. But that can hardly be classified a pell-mell expansion or irrational exuberance. In a pork market that is highly sensitive to quantity, that growth may be enough to cause some red ink, but I don’t see a disaster – barring any unforeseen circumstances.

U.S.-Canadian Relations
In January 2005, Canada and the U.S. were at odds over trade – in pigs. As January 2006 dawns, the two countries are now at odds over trade, this time in corn. And the wind sown by tariffs on corn could reap a whirlwind of trade issues regarding pigs and cattle.

Driving up Canadian grain prices relative to those of the U.S. will no doubt provide huge incentives to feed pigs and cattle in the U.S. Now we hear that the Canadian Border Services Agency has a plan to compensate Canadian feeders for the tariffs charged on imported corn. And further, as I understand it, that compensation will only be paid if those animals are shipped to the U.S. I don’t know many details of the program, but that seems to provide an additional incentive to ship slaughter animals south as well.

Should this action result in a flood of pigs into the U.S., do not be surprised if U.S. pork producers file another trade action. And this one could be more successful. Canada will not have a significantly weaker dollar to credit for its increased exports. The U.S. will have the clear issue of Canadian trade action and, perhaps, direct subsidies not generally available to all producers. The economic times will not be nearly so good, thus making the case for injury a much easier one.

This is playing out like Greek tragedy. Bad things are happening and everyone claims that they have no power to stop them. It’s time for leadership in both Canada and the United States. Subsidized U.S. grain, protected Canadian sectors, and risk reducing whole farm income supplements – you can’t give people money without affecting their behavior. Something has to give if this continent is to maintain its competitive position in the world pork market.

The late Jerry Clower, the country sage of Yazoo City, MS, used to tell the story of the time his friend John climbed a tree to knock out a ’coon (that’s a raccoon for those of you not from the South) only to find that it was not a ’coon, but a lynx. During the subsequent melee’ high up in the tree, Jerry and the others on the ground kept yelling “Knock him out, John!” to which John finally replied, “Just shoot up here amongst us ’cause one of us has to have some relief!”

Let’s hope it doesn’t come to that between the Americans and the Canadians. We all have too many friends across the border to take that chance.

Thank you so much for reading North American Preview. I received many kind comments this year and, just as important, a good number of critical comments – usually offered in a very positive manner. I appreciate both and urge you to continue to communicate with us.

May 2006 be a happy, blessed and prosperous New Year for you and those you love!

Click to view graphs.

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