Chinese Pork Tariffs in Perspective Created on Apr 10, 2018
There has been much discussion and activity in the lean hog futures markets on the impact of the U.S.’ latest trade spat with China. Each tariff announcement has brought a drop in lean hog futures.
There are a few factors to consider when pricing out the impact of a 25% tariff on U.S. meat exports to China.
According to the GOC Sector Trend Analysis of 2016, 60% of U.S. pork exports to China were frozen offal and cuts with no domestic value in the U.S. or Canada. While the ratio of value cuts may have changed since 2016, data from the US Meat Export Federation suggests that the value per ton sent to China matches that of U.S. exports to Mexico (approx. $1900/ton), both of which are half the value/ton of the cuts sent to Canada and Japan (approx. $4000/ton).
From 2016 to 2017, U.S. exports to China reduced by 28% indicating that the Chinese market has already been shrinking. Meanwhile U.S. exports to markets such as Mexico (+12%), Korea (+29%), South America (Columbia (+56%), Chile (+60%), Peru (+60%)) and Asean Countries (Philippines (+13%), Singapore (+39%), Vietnam (+104%)) grew within the same time frame.
Chris Hurt from Purdue University noted that if the U.S. “lost all two percent of our demand represented by Chinese volume it would be expected to lower U.S. prices by about 4.4 percent or around $2.20 per live hundredweight or about $6 per head.” Given that this is a 25% tariff on low value products and not a ban it can be expected that the negative impact to hog prices could be as little as only -1%.
While a short term dip in prices should be expected as market share is redistributed to other areas of growth, it is likely that the immediate reaction to the tariff announcements has been overdone.
Attention to other commodities affected by the trade disputes should be paid due to potential changes in cost of production, such as potentially lower soymeal prices or higher building costs.