Jim Long, President-CEO, Genesus Inc.
THE BIG STORY
–China Agrees to resume buying Canadian Pork –
Last June China stopped purchasing Canadian Pork. Up to that time in 2019 China’s pork imports from Canada were 15% of total imports, Just below Spain and Germany at about 18-20% each.
The closure put pressure on Canada-U.S. pork prices. The issue that triggered the stoppage was false labeling by a Canadian pork exporter to China that was missed by the Canadian Food Inspection Agency. There was also some political issues involved mainly due to the Huawei Executive being held by Canada for possible extradition to the U.S.
Last week much to the relief of Canadian and should be to U.S. pork producers China agreed to begin again to import Canada Pork.
- Pork leaving Canada to China takes that pork out of Canada, U.S. and Mexico markets.
- Less supply in Domestic North American market will support prices in all three countries.
- Canada’s tariff on Pork to China is 12%. Currently U.S. is 70%
- There are reports that over the next twelve months China’s pork production will be reduced by 24 million tons. U.S.A. – Canada – Mexico’s production in total isn’t much more than 15 million tons a year.
- The amount of pork Canada can send to China is much more limited by logistics than demand.
- China is a black hole for pork. It will go and disappear.
- The arithmetic to send pork to China is aided by the raw economics.
We have done business in China for 8 years. Chinese are natural capitalists and traders. The arithmetic of buying pork in North America is simple- Pork cut outs 80₵ lb. last week. China Pork Cuts outs about $3.10 lb.
Example: buy Pork in Canada at 80₵ lb., pay 12% tariff. Sell Pork at $3.10 lb. That’s a spread of over $2.00 a lb. to cover costs.
A 200 lb. carcass = $400. It doesn’t take an Ag Economist to figure out the incentive.
Every 40,000 lb. (200 Head) shipment would be $80,000 gross margin. As they say “Where do I sign up to do this?”
What we calculated is probably over simplified but make it half of what we calculate, it sure the heck beats raising hogs the last couple years.
One of our points of this exercise is that beyond needed pork to fill the black hole created by ASF there is tremendous financial incentive for pork to move to China. We are not sure how fast Canada can get back to full speed shipping to China, but obviously big incentive to get it going.
- Market Hogs are $700-$750 U.S. each in China. It is really expensive for some potential producers who have empty facilities or were backyard producers to purchase gilts.
- First, do they have money to place gilts and carry the cost to get to production?
- Second, ASF has not been stopped. Invest and get ASF ?
- Real issues for China to rebuild industry.
Last week we highlighted Meta Farms data that indicates average herd had 12.2% sow mortality. The top 10% 18.1%. This past week we read a feature article on National Hog Farmer blog about Pedicures- feet trimming for sows. Wonder why there are more dead sows? It’s poor feet and legs genetically.
If you wish to lower sow mortality, maybe ask the Genetic supplier if their genetics need feet trimming- Its cause and effect. We will categorically state that Genesus doesn’t.
We have been told that one genetic company actually encourages their customers to go to foot trimming school. That’s a fun job. Foot trim and haul out dead sows.
As Forrest Gump said “Stupid is what Stupid does!”
MetaFarms is the major Analytic platform for over 500 production companies in Canada-U.S.A.
Below is last quarter finishing results July 1- Sep 30- 2018 and 2019
This post was written by Genesus