Pork producers first casualties in Trump’s trade war
Pig farmers across the world are feeling the heat from the trade standoff between the US and China
KEN Maschhoff, chairman of the largest US family-owned pork producer, has watched profits fall as trade tensions rise between the United States and China.
His company, The Maschhoffs, has halted US projects worth up to $30 million and may move some operations overseas. Investing in domestic operations now would be “ludicrous” as China and others retaliate against US agricultural goods, Maschhoff said from the firm’s Illinois headquarters.
Across the globe, Chinese pig farmer Xie Yingqiang sent most of his 1,000-pig herd to slaughter in May to limit losses after Chinese tariffs on US soybeans hiked feed prices and left him unable to cover his costs.
“It did not really make sense to keep raising them,” said Xie, from eastern Jiangsu province.
The fallout of the US-China trade war is landing particularly hard on the pork industries of both nations — and it’s also affecting other major pork exporters such as Brazil, Canada and top European producers.
The world’s pork farmers and processors are almost universally shedding profits and jobs from a crippling combination of rising feed costs and sinking pig prices.
The key reason: the trade war came at precisely the wrong time, after a worldwide expansion to record pork production levels on the expectation of rising meat demand and low feed prices from a global grains glut.
In the United States, meat companies such as Seaboard Triumph Foods (SEBA) and Prestage Farms have spent hundreds of millions of dollars boosting US slaughter capacity by more than 10 percent from three years ago to nearly half a million hogs daily.
Just before trade barriers went up, the US Department of Agriculture (USDA) predicted in an April analysis that global supply growth would outpace demand this year, sparking “fierce competition and lower prices.”
Tariff battles accelerated those trends by shutting off export markets, raising feed prices and upending regional supply-and-demand dynamics that underpinned industry profits.
US pork faces retaliatory duties of 62pc in China and up to 20pc in Mexico, slashing demand from two top US pork export markets and contributing to a mountain of unsold meat in cold storage.
The White House did not respond to requests for comment.
The USDA said in a statement that pork producers soymeal costs have declined because of a surplus of domestic soybeans that China is no longer buying. The Trump administration is working to increase opportunities for US agriculture with the European Union, Japan and the United Kingdom, the agency said.
In China, tariffs on US soybeans and an outbreak of African swine flu have driven farmers to send hogs for an early slaughter, exacerbating a glut that followed the rapid expansion of more efficient, largescale farms in recent years.
Swine fever
Higher domestic supply and rising imports from other suppliers, such as Spain and Brazil, has compensated for the slide in US pork imports.
But an African swine fever outbreak this year has added to the problems of China’s pork producers. More than 40 cases have been reported in 13 provinces so far, and restrictions on hog transportation to control the disease have resulted in a glut in some northern provinces and a shortage in the south.
Brazil’s pork industry has suffered higher feed prices partly because farmers now must compete with major Chinese soybean buyers who turned to Brazil to avoid tariffs on US beans.
In Canada, the world’s third largest exporter, producers’ fortunes have fallen along with the US because their prices are tied to that much larger market. In August, prices fell 31pc less than the previous month, according to data compiled by Hams Marketing Services.
Manitoba farmer George Matheson now expects to sell his about 250 pigs for C$115 per head — well short of the C$150 it costs to raise them.
“I had a hunch this would not be a good thing,” his said of the trade disputes.
Many farmers in China are searching for cheaper protein-rich ingredients to replace soymeal, such as rapeseed or yellow peas.
“Everything I use is becoming more expensive,” said Yu Shiqian, who raises 1,800 hogs in Liaoning province. “Only the hog price is declining.”
Big producers are also being hit hard.
Hong Kong-based WH Group, the world’s top pork producer, which also owns US giant Smithfield, warned earlier this year that its biggest challenge is the oversupply of meat in the United States and uncertainty over trade tensions.
Top Chinese producers reported their worst earnings in years in the second quarter due to weak hog prices.
Meanwhile, in Iowa, the top US pork-producing state, trade disputes will cause hog farmers to lose $18 per head, or $800 million in total revenue from August 2018 to July 2019, Iowa State University economists predicted in September.
For The Maschhoffs, the estimated loss equates to $100 million.
“We were going to make money in ‘18 and ‘19, and now we’re going to have a red year,” Maschhoff said. Reuters