National Post (National Edition)
CANADIAN PIG FARMERS LATEST TO FEEL TARIFF FALLOUT.
Canadian pork farmers are the latest to be stung by U.S. President Donald Trump’s trade policies, as the tariff disputes send prices plummeting.
Retaliatory tariffs imposed by Mexico and China, both engaged in trade battles with the United States, have specifically targeted American pork imports. Mexico slapped a retaliatory levy of 20 per cent on U.S. pork while China has upped its tariffs to 62 per cent.
The measures have deepened the already sizable challenges facing U.S. pork producers, who are grappling with an oversupply problem after an anticipated capacity boost at processing plants didn’t materialize this year.
Carcass prices that sat at US$86 per hundredweight in late June have since fallen to around US$56 per hundredweight — a decline that is also dragging down Canadian produce, which is benchmarked to the U.S. hog prices.
“We’re in a cyclical business and we know that’s part of the gig, part of how the markets work,” said Rick Bergmann, a hog farmer in southeastern Manitoba and chair of the Canadian Pork Council.
“The challenge is when the cycles occur for the wrong reasons and that’s what’s happening now. Part of this is a political issue and it’s out of our control.”
It’s a sentiment shared by many Canadian farmers.
Soybean prices — also subject to hefty Chinese tariffs — have plunged 20 per cent since late May. And prices for a variety of other grains, including corn and wheat, fell off last week after reports that the U.S. was poised to harvest unusually large crops even as tariff wars choke off demand.
At a time that many Canadian producers ought to be planning their investments for 2019, they are instead grappling with the daily unpredictability of Trump’s America First trade policy, said J.P. Gervais, chief agricultural economist at Farm Credit Canada.
“These policies are shifting really quickly and I think that’s the first and foremost concern for farmers right now,” he said. “How are they going to plan their crops when they don’t know if the policy will change tomorrow? What probability do you assign to the U.S. and China working out their trade differences? It’s not easy.”
A key difficulty for farmers, is the sizable lag between the point at which they must make a crop decision and the point of harvest, according to Gervais.
“You have lags in other sectors of the economy, of course,” he said. “Cars aren’t built overnight. But in agriculture you have three months to wait for production, a period in which anything can happen and if it does, you don’t have any ability to change course.”
Hog prices began to slide dramatically after July 4. That’s around the time Mexico, the largest market for U.S. pork producers, and China, the No. 3 market, escalated their tariffs to current levels, said Christine Mccracken, a senior analyst at Rabobank in New York.
“Prices fell off a cliff then and have been falling like a stone ever since,” said McCracken, who emphasized that oversupply and labour shortages had already foreshadowed a tough year for U.S. producers. “Now futures are looking awful.”
December futures for live hogs have fallen to US$47.37, a level at which farmers “will be losing a lot of money,” she said.
Though they may have sunk prices, the tariffs don’t appear to have made a significant dent in the flow of trade so far, said Kevin Grier, an independent market analyst for the food industry.
As the most efficient supplier to Mexico, the U.S. has continued to ship hams south of the border, with players on both ends of the transaction absorbing the tariff. However, the longer the trade measures are in place, the more likely those patterns will change, he said. Hams that can’t find a market in Mexico could end up in Canada, distorting longstanding trade flows shaped around market forces.
“It’s messy right now and I think a lot of people are pretty damn worried,” Grier said.