Dr. Dermot Hayes, a Professor and Pioneer Chair in Agribusiness with Iowa State University, calculates the imposition of retaliatory tariffs on U.S. pork will shift the profitability of U.S. pork producers from break even to losing money.
Trade was among the top of mind issues discussed in June as pork sector stakeholders from around the world gathered in Des Moines for World Pork Expo 2018.
Dr. Hayes said the reaction to U.S. tariffs imposed on imported aluminum and steel was swift and for the pork industry is costly.
China placed a 25 per cent duty on U.S. pork April 1, and in the week before and afterward U.S. live hog prices stretching out a full year were down significantly.
“That’s in part because some of the products we export to China don’t have another alternative market,” he said. “Mexico imposed a 10 per cent duty on U.S. hams and shoulders, and that will go to 20 per cent in early July. The average producer in Iowa was expecting a break-even year where they just covered their total costs with no extra profit. Now it looks like they’ll average about a nine dollar loss per head over the course of a year. The drop in the futures and the nearby contracts were greater than that but the reduction in the futures out further there was less.”
Dr. Hayes said that was all the China impact but no Mexico impact. That’s in part because Mexican ham buyers, realizing that the duty is going to go from 10 to 20, are buying hams right now rather than pay a 20 per cent duty and also because there are all sorts of leaks out of the administration that none of this is permanent.
Dr. Hayes said other nations are also upset with the United States over the aluminum and steel issues and there is concern that Japan might impose retaliatory duties on pork as well.
“The U.S. ships a lot of pork to Canada but Canada ships even more to the United States and I suspect, if Canada imposes duties on the U.S., it will not touch pork because Canada has a positive trade balance in pork,” he said.
Closer to home Tyler Fulton, the Director of Risk Management with h@ms Marketing Services, said higher U.S. pork production combined with uncertain demand due to Chinese and Mexican tariffs on U.S. pork would put significant downward pressure on North American hog markets through the fourth quarter.
Fulton said the 25 per cent duty imposed by China on U.S. pork and a 10 per cent duty imposed by Mexico on U.S. hams and pork shoulders that will rose to 20 per cent in July, has created a great deal of uncertainty. Especially heading toward the fourth quarter that’s expected to see about five per cent more pork produced in the U.S. than one year ago.
He said Mexico and China represent two of the top four destinations for U.S. pork with Mexico being number one in volume and probably number two in value and China being number four or number five depending on the year.
Fulton points out Canada uses U.S. pricing points as the critical dynamic feature of their hog pricing formula, so when U.S. hog prices decline, that lowers the price that Canadian producers get.
He believes a reasonably healthy hedge would be something as massive as 50 per cent of production from that September to December time frame but going even more substantial than that on further rallies gave that the uncertainty on the export side doesn’t seem to be diminishing. •
— By Harry Siemens
