Hog industry worldwide getting slaughtered in trade war
Ken Maschhoff, chairman of the largest family-owned pork producer in the United States, 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 company’s headquarters in Carlyle, Illinois.
Across the globe, Chinese farmer Xie Yingqiang sent most of his 1,000-pig herd to slaughter in May to limit losses after Chinese tariffs on US soybeans pushed up 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 duelling salvoes of the US-China trade war are landing particularly hard on the pork industries of both countries — and they’re spraying shrapnel that has damaged other major pork exporters such as Brazil, Canada and top European producers.
In contrast to many industries that the trade war has divided into winners and losers, 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 US, meat companies such as Seaboard Triumph Foods and Prestage Farms have spent hundreds of millions of dollars boosting US slaughter capacity by more than 10% 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.
“As this trade war has heated up, it’s made the trade with China very difficult — to even stopping at various points — because the tariff that’s been imposed makes it not viable,” said Kenneth Sullivan, chief executive of Smithfield Foods, the world’s largest pork producer and a division of China’s WH Group.
“We’re keenly interested in the US and China getting it resolved,” Sullivan said, adding that expansion of the US pork industry had also hurt profitability. “Certainly US agriculture has a lot at stake, and China, to the extent that they’re on the surplus end of the deficit, has, you can argue, more at stake.”
US pork faces retaliatory duties of 62% in China and up to 20% in Mexico, slashing demand from two top US pork export markets and contributing to a mountain of unsold meat in cold storage.
The USDA said in a statement that American 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, large-scale farms in recent years.
Higher domestic supply and rising imports from other suppliers, such as Spain and Brazil, has compensated for the slide in US pork imports. But the 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 transport 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 those of their US peers because their prices are tied to that much larger market. In August, prices fell 31% 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 northeastern 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 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 Muyuan Foods Co Ltd, Guangdong Wens Foodstuff Group Co Ltd and Beijing Dabeinong Technology, reported their worst earnings in years in the second quarter due to weak hog prices. Dabeinong also blamed high raw material prices for eroding margins in its feed business.
Xie had hoped to rebuild his herd after the summer but instead “decided to stay away from the pig business for a while”.
“At least I can guarantee I don’t lose money this way,” he said.
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.
The company considered investing in China, Eastern Europe and South America in recent years but shelved the plans because they could more efficiently raise pigs in the United States.
“We’re starting to scratch our heads and say, ‘Did we make the right decision?’” he said.
“Everything I use is becoming more expensive. Only the hog price is declining” YU SHIQIAN Farmer in Liaoning province