The initial 2018 outlook for the U.S. pork industry was for modest profitability. Dr. Chris Hurt, Professor of Agricultural Economics at Purdue University says the new Chinese tariff on U.S. pork imports have pushed the industry into negative territory. He says American pork producers were already battling rising production costs.
“Prices of feed have gone higher. Now, that’s great for our corn, soybean, and wheat producers. But for the hog producers, we were already looking at a break-even to a little bit of profit. But then with higher feed costs, corn and soybean meal up, and now with this Chinese tariff, that looks like it’s going to lower US prices. How much is that going to be? We’ll have to look at the details. We’ll have to look at really what kinds of pork products it affects.”
He says the 25 percent duty on American pork will likely price it out of the Chinese market. China imported two percent of U.S. production in 2017. From an economic perspective, there will be some balancing out between lost exports to China and new sales opportunities. However, the overall outlook is still negative for pork prices.
“There will be some compensating balance. We know one of those is you lower the price in the United States. We’ll sell some more pork domestically. Then what’s going to happen to that pork that China doesn’t buy from the US? Well, we think the European Union and Canada will largely supply that, so that may mean that’ll open up some of their customers that they’re not selling as much to. I think we’re probably looking at something that, at the maximum, is about $6 a head. At the minimum might be around $3 a head.”
Hurt says the Chinese were very strategic in placing the new tariff on U.S. pork imports. Pork is a key part of the $3 billion in retaliatory imports China placed on U.S. goods.
“China primarily produces its own pork. 97 percent of the pork they consumed last year was produced in China. US exports to China only represented one percent of the pork they consumed, and they can easily buy that shortfall from other areas like the European Union and Canada. The other thing that this really hit home for in China is a little bit of political opportunity. That is to go after pork, which would be negative to our producers in Minnesota, Iowa, Nebraska, Illinois, Indiana, and across the entire country. These tend to be very strong areas that have supported President Trump politically.
Hurt says the Chinese tariff on U.S. pork, along with rising costs, have shifted the outlook for 2018 to losses expected to be about $12.50 per head. Uncertainties surrounding NAFTA remain a grave concern as well. The U.S. pork industry exports nine percent of its output to Canada and Mexico, combined.