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The Market's Fine Print
Wednesday, February 25, 2015 5:18PM CST

By John Harrington
DTN Livestock Analyst

Given forecasts of clear sailing and red skies at night, skilled longshoremen have been known to fully load a Panamax reefer in less than 15 hours. Country shippers more familiar with hot-shots and loading chutes may be less than impressed.

Yet once you know that a refrigerated container contains a payload equivalent to 44 fattened steers or 210 finished hogs, once you imagine a cargo ship riding low in the waves with as many as 5,000 containers on board, all of a sudden it seems like a pretty good day's work.

Of course, the choppy seas and storm clouds choking 29 critical West Coast ports since last spring have not exactly showcased this efficiency. Indeed, the protracted dispute between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association threatened to take a dire toll on the entire U.S. economy just before it was thankfully resolved late last week.

There were probably more economists, investors, and retailers worried about unloading stymied by this labor dispute than any tardiness in loading. The simple and awkward fact of the matter is that we are, by and large, a nation of importers. Regularly wearing trade deficits like a badge of honor, Americans seem to embrace foreign goods as quickly as Fluffy warms to catnip. Specifically, it's estimated that total U.S. exports constituted no more than 13% of GNP in 2014.

Those of us in the small club known as "agriculture" look at the docks quite differently. Aggressive exporters in the meat industry were particularly troubled by the near work stoppage along the country's left coast, and for good reason. Approximately 80% of all beef and pork sales to foreign buyers leave from these picketed ports.

So it's no wonder livestock producers have taken a keen interest in union news since 2015 began. To be sure, the sprawling smorgasbord of bearish factors served up in the market over the last several months (e.g., surging pork production, the strengthening dollar, signs of herd expansion, slumping wholesale meat demand, collapsing oil prices) makes it extremely difficult to measure the impact of this one piece.

Nevertheless, the mere threat (and the evidence has been much more tangible) of a major kink in the crucial hose of meat exports has definitely made some negative difference. Furthermore, I would argue that the successful return of dockworkers back to their cranes and front-end loaders deserves a good deal of the credit for new bottoming action evident in lean hog futures.

Although it will take some time to clear the serious backlog of cargo ships waiting to be serviced (possibly several months according some veterans of water traffic), the fact that stevedores are back at work with a new five-year contract in their pocket is essential news for pork producers who are now causing the warehouse pallets to sag with commercial tonnage 6%-8% greater than a year ago.

In order to export 22% or more of expanded pork production in 2015, it will be absolutely necessary to keep the infrastructure of international trade humming like a well-oiled machine. Playing over the muscle-bound dollar will be tough enough. Winning back a level of normalcy in terms of shipping channels strikes me as absolutely critical for effective price damage control through the balance of the year.

As far as beef is concerned, the resumption of timely exports should obviously also be seen as positive. Yet I wonder if the resolution of a major strike, partially settled by a significant hike in workers' pay (rumored to grow 14% over the life of the new contract), is not teasing the beef industry with a different message. While the major marketing challenge of pork producers is a big spike in tonnage, the primary trial of beef producers is record prices and the ability of consumers to pay.

Since the economy bottomed in 2008, corporate profits have consistently soared while working wages have lagged far behind. Given the way employment plunged as the Great Recession began and its painfully slow recovery over the next five years, this pattern was hardly surprising. Indeed, in many ways it was simply the standard business cycle doing its necessary work (e.g., companies cutting expenses, padding their bottom line, and waiting for sufficient economic confidence to surface to justify expansion). Like it or not, lackluster wages preserved by large unemployment totals go hand-in-hand with such a scenario.

But there are encouraging signs that economic growth has turned substantial enough to finally necessitate the need for substantial wage progress (i.e., management forced to compete more aggressively for a declining supply of quality workers).

In its way, the settling of the port strike may be a reflection of the budding trend toward meaningful wage improvement. And this isn't the only example of bigger paychecks being cut. A handful of large retailers including the Gap, Ikea and Aetna have announced improved wages in recent months

Just last week, one of the biggest elephants in the wage jungle trumpeted a major shift in labor policy. Starting in April, Wal-Mart will pay a minimum hourly wage of $9, $1.75 more than the federal minimum wage of $7.25. Next February, Wal-Mart's lowest hourly rate will rise to $10, impacting close to 500,000.

If the shift from record corporate profits to higher wages continues, it should be good news for beef demand. While the former may be causing stockholders to cheer and significantly inflate executive bonuses, the latter could go much further down the road in terms of per capita beef spending.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket


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