Canadian hog producers suffered this summer through no fault of their own and are asking the federal government for financial assistance.
Hog futures and cash prices fell much more than the normal seasonal retracement following the usual spring rally. The main reason for the decline was the trade war the United States is fighting against Mexico and China.
In response to tariffs that President Donald Trump put on imports of Chinese and Mexican goods, the two countries imposed retaliatory tariffs that included hefty duties on American pork. For Mexico, the tariff was 20 percent and China’s tariff is 62 percent.
Mexico is the largest importer of American pork, taking one-third of all its exports in 2017 while China accounted for another 20 percent of U.S. pork exports.
Export demand will be critical in supporting prices this year because supply of all meat, pork, beef and chicken is more than ample.
The U.S. exports almost 25 percent of is pork production.
Surprisingly, the immediate impact of the tariffs was limited, at least in regard to volume. In July, U.S. pork exports by weight actually increased 1.5 percent because other buyers stepped in to fill the gap and take advantage of falling prices. The value of the exports declined five percent.
Early signs for August also show strong U.S. weekly pork exports, albeit at weaker prices.
The worry and uncertainty caused American hog prices to crash from mid-June until early August, and because the Canadian market closely follows U.S. prices, they collapsed here as well, even though Canadian exports to Mexico and China have no restrictions.
Late last week, the Canadian Pork Council asked the federal government for help similar to what the U.S. government has given to producers to cushion the blow from its trade actions.
Washington set up a $12 billion broad trade mitigation package that included assistance to pork producers, including an $8 per head ad hoc payment on half of a producer’s production.
The nearby October lean hog futures contract hit bottom on Aug. 8 below US$47 per hundredweight but then partly recovered for a few days when it became clear that the U.S. and Mexico were making progress on their trade talks.
However, they turned down again when China-U.S. trade talks on the week of Aug. 20 did not lessen tensions.
Overall, in Canada that meant hogs were being sold for about 30 percent less than last year at the same time.
This past week, hog futures again staged a modest recovery on the hope that a growing outbreak of African swine fever in China could potentially lead to reduced hog production there. Also, there was hope that the usual fall rally might have started a little early.
It is hard to know if prices will recover back to normal levels.
At least there is data that shows that even with the trade headwinds there was not a backup in the U.S. hog pipeline. The average dressed weight at the end of August was actually down one pound from the same point last year.
It is hard to know the impact of African swine fever in China.
It can spread rapidly, and China still has many small backyard operations that have low biosecurity, increasing the chance of it becoming a major problem.
The disease is deadly to pigs. They can get it from ticks as well as movement of infected pork and feed. There is no vaccine or treatment.
The disease is not harmful to humans, but consumers might still be wary. Some might turn to imported pork to be on the safe side.
It had been found on 18 farms as of Sept. 7. The distribution was surprisingly wide, even as authorities responded with culling and farm disinfection as well as banning hog movement in affected provinces, which is already disrupting supply chains.
China went into this situation with its hog herd at a peak and pork prices at a four-year low.
In recent years China’s government has pushed for a massive restructuring of the hog industry, partly to address pollution. It cracked down on small operations, mostly in the south, that polluted waterways and encouraged big modern barns in the northern grain belt.
The big operations appear to have scaled up too quickly, creating a pork surplus.
The domestic surplus meant its pork imports from all sources were reduced, giving Beijing the confidence that its tariffs on U.S. pork imports wouldn’t cause shortages.
Now swine fever has become a wild card that might create a new dynamic in the market, but it might also be negligible.
If there is any impact on trade, it will likely be months down the road.
The better hope is that the U.S. and Mexico resolve their differences and Mexico drops its tariff on American pork.
But no matter what, the large supplies of all meat in the United States this year will likely continue to be a price limiting factor.