Look at cause and effect
I want to use this space to touch on two seemingly unrelated but poignant topics for pork producers – both deal with the relationship between cause and effect.
As a backdrop, we must recognize the human condition of always thinking that we are “right”. It doesn’t matter if it is politics, vaccination opinion, or whether it is appropriate to ask for directions when we are lost, we all tend to believe we are ‘right’. A logical person always thinks they are on the right track… or we would change our minds and redirect our efforts to then get “right”, even if they are 180 degrees away from our previous opinion. Maintaining a course and ignoring contrary information is called ignorance. It is easy to see this gap in others, but it is not so obvious when we cling to our perfect conditions which provide us with mental comfort. The ability to respond to new stimuli – bending instead of breaking – under changing conditions is what leads to success in life and success in the markets. I don’t have any advice on how to deal with conflict in the vehicle when the driver is pointing left and the passenger is pointing right at an intersection, but I do think there may be a couple of things at play on them. markets that require us to calm our minds and pay attention to competing circumstances.
Let’s take a look at the corn market first. Two weeks ago we got a government report that was bullish, maybe even madly. The projected yield estimates for the US crop were lower than expected and were even lower than the lower range of the pre-report estimates. The market, rightly so, has risen sharply after this information was released. But then he did something else. It flattened out, failed to follow through, faded, and didn’t even respond to subsequent favorable news regarding the weather and the export sales market. This is when a market player who has all the “right” (bullish) answers ends up making margin calls.
When given the choice between an informed opinion and market activity, the markets will win every time. This is when you take advice from your spouse and turn the truck to the left even though you think you should go right. The flashing light in this scenario is the propagation activity. Spreads are indicative of demand for liquidity – just as base regulates and indicates local demand – while the overall movement of futures contracts attempts to reflect a larger context. Namely, the spread between the September contract and the December contract around Memorial Day was a premium of 30 cents compared to September. This is when things heated up and the market was trying to encourage acres – a reverse market is usually a bullish condition. Now we’ve reversed that and September is a 7 cent discount in December, a resolutely bearish signal. A potential bull may want to pay attention to a big clue.
The other area where we might consider an alternative to our previous thought process concerns the implementation of the provisions of California Proposal 12. For reference, here is the verbiage from the California Department of Food and Agriculture (the subjective verbiage of “Cruel” is theirs, not mine).
- Proposition 12 is a voting initiative passed in 2018 by California voters that bans the confining of farm animals (laying hens, veal calves, and breeding pigs) in a cruel manner and bans the sale of products (eggs, veal meat). and pork) from farm animals cruelly contained in the California trade. Two deadlines are outlined in proposal 12, the first requiring that laying hens be housed a minimum of 144 square inches per hen and calves reared for the calf housed with a minimum of forty-three square feet per calf from here. January 1, 2020. The second deadline for the requirements comes into effect on January 1, 2022 for laying hens to be housed out of cages and breeding pigs reared with twenty-four square feet per pig.
The last sentence, of course, refers to the topic we have been considering for the pig production community as we attempt to internalize its implementation. This is where things get interesting. Last week, the same entity posted this on their website:
- Question: Will stocks of shell eggs, liquid eggs and pork already in stock before January 1, 2022 have to be discarded if this covered product comes from animals not raised according to the containment standards of the? out of cage for hens and square of twenty-four feet per breeding pig?
- Answer: No. The definition of “cruelly contained” ultimately changes on December 31, 2021 for laying hens and breeding pigs. Therefore, shell eggs, liquid eggs and pork already in stock or in trade on December 31, 2021 will still be able to be sold in California. (emphasis added).
The highlighted area is a pronounced change from what we previously interpreted. Simply put, this statement pushes the implementation threshold back by about six months to the summer of 2022. A follow-up call to California for clarification gave the same understanding of this provision. This is an important consideration for pork producers, as it saves more time to understand the implications of the proposed rule (note today that Proposition 22 – dealing with Uber drivers – is in the news as it is declared unconstitutional, the legal challenges to Proposition 12 continue to make their way through the court system) and ensure an uninterrupted flow of products from current production practices to California.
The bottom line for a pork producer is good news. Grain prices not appreciating and the apparent removal of a potentially onerous policy in California. Two things we can probably all embrace.
The comments in this article are market commentary and should not be construed as market advice. Trading is risky and not suitable for everyone. For more information, contact Joseph Kerns.
Sources: Joseph Kerns, Partners for Production Agriculture, who is solely responsible for the information provided and fully owns it. Informa Business Media and all of its subsidiaries are not responsible for the content of this information asset.