It’s a mad scramble to find a new home for 12,300 metric tons of U.S. pork produced for China that was cancelled last week in the latest trade war casualty, says U.S. Meat Export Federation vice president for economic analysis Erin Borror.
The impact of this cancellation is being felt throughout the entire red meat industry, she adds. These high duties have effectively halted trade and could result in billions of lost dollars for U.S. livestock producers.
USDA says this is the largest cancellation since May 2020, early in the COVID-19 pandemic. Although Trump administration officials suggested last week that a de-escalation of trade tensions between the U.S. and China could be coming soon, USMEF says neither side has adjusted recently heightened tariff rates.
“With China imposing retaliatory duties in response to U.S. ‘reciprocal’ tariffs, China’s effective duty rate on U.S. pork and pork variety meat has reached 172%, while U.S. beef and beef variety meat are tariffed at 147%,” USMEF explains.
For the US pork, beef and poultry industry, the Chinese market is effectively closed based on these tariffs, says Brett Stuart, economist and founder of Global AgriTrends.
Where Will China’s Canceled Shipment of Pork Go?
In 2024, Chinese customs shows that the country imported a total of $4.6 billion worth of pork, with most of it sourced from non-U.S. markets. Pork shipped from the U.S. to China totaled $859 million.
One of the biggest challenges with U.S. pork destined for China is that it’s produced with special China labeling, Borror says. This makes a cancelled shipment a challenge for many reasons.
“It’s ractopamine-free product with a China label, both on the bag and the box,” Borror points out. “So, it’s costly production specific for China and thus difficult to reroute or find a new home for this product. China has unique product needs that other destinations cannot fully replace. They buy specific items at premiums that other markets are unwilling to pay, certainly at the volume and at the price that China takes.”
As a dominant buyer of variety meats, Borror estimates without China on the pork side, losses of about $8 to $10 per head across that total industry for the year, which is around a billion-dollar loss.
Can the markets rebalance? Stuart says if one market slows down or closes, usually another market opens up and the markets find a new balance. But China is different.
“What makes China unique is what they buy,” Stuart says. “We ship neck bones, heads, feet, tails, intestine, all kinds of things like that, to China, because it’s really the only market that takes those things. The question now for exporters is, what do we do with this?”
Some of this product will come back and go into rendering. However, he says rendering prices are significantly lower than any price received from China.
“We’re talking about a big backlog of products that just don’t have a home with China closed,” Stuart says. “We can’t instantly flip the switch and send everything to rendering. We’re talking 35 to 40 million lb. a month. We don’t have that rendering capacity. We can use some for pet food. We can find alternative markets for some cuts. But really, the impact is devaluation of a lot of underutilized cuts.”
Who is the Biggest Loser?
Stuart says the packer margin is hit the hardest in this situation. When offal drops, that goes right back against packer margins.
“Anyone who’s sold hogs to a packer knows you’re better off when packers are making money than when packers are not making money,” Stuart says. “That margin pressure at the packer is going to push back into the hog markets.”
Is this enough to wreck the pork market? Stuart doesn’t think so.
“It’s going to tighten the belt, especially for packers/processors, for their margins,” he says. “This does have a carry-through effect, ultimately back into hog prices.”
Challenges for Beef Producers
Meanwhile, on the beef side, China is a top customer for short plate, short rib, chuck short rib, rib finger, tiger tail, honeycomb -- very China specific products.
“Without that China bid, we’re looking at $150 to $165 per head industry loss and added up over a year that would be about a $4 billion lost opportunity on the beef side,” she says.
China’s failure to renew registrations for 400 U.S. beef facilities presents an additional barrier for U.S. exports, as the majority of U.S. beef production is currently ineligible for China, regardless of the applicable tariff rate, Borror says. Registrations for most U.S. pork facilities were renewed in March, but China has not yet renewed nine establishment registrations that expired April 20.
Will China Go All the Way?
The billion-dollar question is what next? Although President Trump made it sound like negotiations or progress are taking place, the Chinese recently came out and said, ‘we’re not even talking yet.’
“My personal opinion is that something gets done here in the next week, maybe two weeks at most,” Stuart says. “One, because these tariffs, as painful as they are for the U.S., are absolutely debilitating for China. In China you’re already seeing factories that are pulling back and slowing down, containers backing up, ships that are not sailing.”
Though this may be a “black eye to the U.S.,” Stuart doesn’t believe the Chinese economy can operate under these tariffs.
“You start closing plants on the eastern seaboard of China, and that is not just a piece of their economy, that’s the heartbeat of their economy,” he says. “The fact that these tariffs are completely untenable for both sides tells me somebody’s going to make a phone call, something’s going to break loose here. But again, it’s politics, and we’ll just have to wait and see.”
China is going after American imports across an increasing number of areas in today’s trade war, Andy Xie, an independent Chinese economist based in Shanghai, told the South China Morning Post.
“There’s no more targeting any more – it’s everything – China has to go all the way,” Xie said in the South China Morning Post. “When push comes to shove, China can ramp up production. It’s not totally self-sufficient, but even with imports cut, China won’t starve.”
It’s Time to Panic…Slowly
What should producers do in light of this chaos?
“Panic slowly,” says Brett Stuart, economist and founder of Global AgriTrends. “This story is not over yet. If you look at Trump’s negotiating style, it is the art of the deal. He lobs a grenade and blows everything up. This scares the market, scares everyone, and then ultimately he pulls back, gives the 90-day pause on reciprocal tariffs and carves out some exemptions with China. What I’m saying here is this is a negotiation and it’s ongoing. I don’t think this is a reason to knee-jerk react and completely change your risk management strategy.”
He says the devaluation of offal due to the loss of the Chinese market is a little painful.
“USMEF numbers said that could be as much as $10 a head in total devaluation, but that’s not right off the hog price,” Stuart says. “That goes through the exporters, packing margins, everything. There are some shock absorbers in the system.”
Looking ahead, he says the pork industry has reason to be optimistic. With the recent rally in hog futures, he believes this will be a decent year for U.S. pork.
“We’re going to see tweets and posts back and forth about this trade war,” Stuart says. “My advice to producers is stay the course. Look at your costs. Manage your costs. Look at risk management. We haven’t upset the apple cart yet with pork exports. There’s still demand out there. The U.S. are very competitive producers and I truly think, over the next two to three months, we’re going to see some new trade deals.”
He’s hopeful better access into Vietnam and the Philippines, and maybe even with Australia on their cooking requirement on U.S. pork, will help.
“I think there’s a silver lining out there,” Stuart says. “The question is, how do you just navigate this pounding media noise of negativity? My advice is panic slowly. Maybe I’m an eternal optimist, but I see a decent year for us in the pork industry.”
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