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Rivers of red ink until next April

The author analyzes the loss-making situation that is engulfing the US pig industry and links its future development to globalisation, which progress seems to be slowing down...

Monday 7 November 2016 (2 years 1 months 8 days ago)
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In the United States, there is a river of red ink in the production sector that will likely flow unabated until almost the summer of next year. Production is backed up and until the new packing capacity comes on line, the pork will be cheap. Open market weaned pigs and feeder pigs were practically free earlier this month. They are recovering some now since the production horizon beginning about now until they are sold at full weight has begun to push into the return of profits predicted for late April/early May 2017 sale dates.

Weekly slaughter has been running dramatically above year ago numbers since September and is just now showing signs that the increase week-over-week is slowing down. This after the record weekly harvest of just over 2.51 million head last week (caused to some degree by the slowing of marketing before it related to the big hurricane which whacked the east coast production and packer areas).

There are lots of bargains in the meat case at the supermarket with some shoulder cuts costing less than $1.00/lb (€2.00/kg) locally. On the national level, pork cut prices at retail were at or near their lowest levels in the last two years. The national average retail price of pork was running from one to seven percent below the average of the last couple years with the only exception being hams.

These rather bleak times in the US production sector has led the national political entity which represents pork producers to ramp up their call for the passage of TPP (Trans Pacific Partnership) to facilitate the long-term expansion of trade (especially the pork trade) to pacific nations to the west. Tempers are beginning to flair, leveling the attack at both political parties “unenlightened rhetoric and lack of political will”.

I admit that as an economist, I would have accepted the traditional understanding of trade and its latest representation in globalism as an unambiguous good thing for all parties involved. The theory and the reality in many ways are compelling and without doubt mostly true. However, we often slip into saying “everyone is better off”, rather than “countries or major businesses are better off”, if trade between nations grows in as unrestricted a way as possible, acknowledging the role of government to ensure agreed upon standards and to regulate against unfair, unsafe and fraudulent practices.

Having said that, the growing voices of revolt by the common person against globalism (defined as nations seeing the entire world as their sphere of influence and seeking together to forge a common set of social and trade rules, cultural norms and networks of trade) are rising around the world and it is slowing the progress of such adventures. Notable examples are the BREXIT choice and the surge of nationalism sweeping the United States electorate resulting in the failure of the Transatlantic Trade and Investment Partnership (TTIP) to advance toward any implementation as well as the stalling out of the Trans-Pacific Partnership. These failures have slowed the advance toward fast track trading going both at east (TTIP) and west (TPP) for the United States and its trading partners. Why would there be any objection?

The idea is that trade makes all countries better off and saves limited global resources since it organizes the global resources to produce needed goods out of regional competitive advantage rather than tradition or other reasons. If large blocks of production for any good are uprooted and relocated in a more economically ideal global location, those who were originally employed producing it are supposed to transition to new work/jobs, often with the help of governmental retraining and limited unemployment subsidies. Once that occurs they too enjoy the cheaper and often better quality goods imported to their country with the income from their new jobs.

Unfortunately, it hasn’t happened quite like that. Capital and technology are nearly instantaneously mobile and can overnight move to a new global home. Unemployed people don’t make the move to new and better jobs quite as fast (or at all). This leaves a tremendous human toll in its wake and often the gutting of regions and cities where the goods were formally manufactured or made. In the United States one need only visit Detroit or Buffalo, or St. Louis, (or a thousand other places). All of this is supposed to be part of the creative destruction of the once status quo so the new and more efficient can rise in its place. We are beginning to see that the new and efficient is leading to robotics, artificial intelligence and other technologies which will result in even more massive regional or statewide unemployment. The cry which seems to be rising in many places throughout the world is about slowing down and doing it right (more equitably) so that when the market offers pork for $1.00/lb someone can actually buy it.

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