Trade war might not boost hog prices for Canada

U.S. President Donald Trump’s trade war with China threatens to crimp U.S. pork exports and has already weakened U.S. prices.

While Canada might sell more to China because of the tit-for-tat scrapping, prices to producers are likely to be disappointing.

“You people need to stop following the U.S. market,” said Iowa State University agricultural economist Dermot Hayes.

“We do these stupid things, but you’re still based off these (U.S. domestic) prices.”

China has threatened to levy 25 percent duties on U.S. pork in retaliation for U.S. threats to hit U.S.$60 billion in Chinese products with import tariffs.

Chicago Lean Pork futures slumped on the announcement and had been weakening in anticipation.

“The price impact is probably already in the market,” said Hayes, noting a $4 per hundredweight drop in less than two days following Trump’s tariff announcement.

China is a vital market for Canadian pork exports and an important one for the U.S. Its function as one of the world’s only markets for “variety meats,” or offal, makes it important in adding value to the overall carcass. Often, offal ends up being rendered and worth almost nothing.

“The bigger impact is for variety meats,” said Tyler Fulton, director of risk management for Hams Marketing. “If they place a 25 percent tariff on that … the Europeans are going to be far more competitive.”

Canada’s pork sales growth to China have been proportionately bigger than that of the U.S. because virtually the entire Canadian industry eliminated the feed additive ractopamine, while much of the U.S. industry still uses it.

China bans the feed additive.

“The trade flows will adjust,” noted Fulton.

Hayes said more Canadian pork overall might end up being exported this year, if tariffs are applied, and more U.S. pork could flow into Canada to meet domestic Canadian demand.

The weanling market, upon which the Manitoba industry is highly dependent, is unlikely to be hurt, Hayes said.

“It makes sense to fill those barns at today’s prices,” he said about Midwestern U.S. hog feeder barn operators.

Despite tariffs, some pork from the U.S. will probably keep flowing to China due to good demand, Hayes said. Other expected sales will find other markets.

“A 25 percent duty on China is bad for the U.S. industry but it’s not a disaster,” said Hayes.

Before Trump’s announcement and China’s counter-announcement, hog futures had already been trending down, something both Hayes and Fulton saw as the market anticipating a possibility of trade war after the steel and aluminium decision.

May hog futures fell US$5-6 per cwt over the weeks before the announcements, and a further $4 upon the announcement, creating an overall drop of about $20 per hog.

The bigger questions now, say many analysts, is whether China imposes its threatened levies, and whether the war spreads to other markets and suppliers.

Hayes said the drop in prices won’t devastate producers, but it turns this year into what will probably be a disappointing one, as opposed to a good year, which was expected until the trade war noise.

“Our exports to China were supposed to grow this year,” said Hayes.

“Instead they will not. They will fall.”

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