With all the news of tariffs between the U.S., Mexico, Canada and China, the industry may be wondering what impacts they create. While no one knows for sure, analysts can make some predictions.
Christine McCracken, Rabobank’s executive director of animal protein, shares perspective based on current data and historical trends.
China
While 10% incremental tariff from China would have limited initial impact, McCracken says the 10% retaliatory tariff in addition to existing 37% tariffs could slow U.S. pork exports. China accounts for 13% of total U.S. pork export trade today.
“China had already become a smaller export market over the past 2 years given larger domestic pork supplies and general weakness in its economy,” McCracken says. “China is also an important market for offal items, with few other destinations taking these items. If the trade becomes uneconomic, these items would likely be rendered at little/no value.”
For comparison, McCracken points out poultry exports to China have also slowed in the past year due to HPAI restrictions. She says the 15% retaliatory tariff on U.S. poultry products is expected to slow export volumes further, while recognizing these tariffs may be waived or absorbed in product values.
“Also worth watching is China’s recent delay in renewing export licenses for several U.S. packing plants,” she adds. “While not a meaningful number today, with several hundred slated for renewal in the coming weeks there could be additional trade challenges.”
Canada
In regards to Canada, the (proposed) 25% import tariff on swine and pork imports (if applied) could disrupt U.S. supplies until trade normalizes, according to McCracken.
“Companies are currently renegotiating terms to absorb the added costs,” she says. “The U.S. is the top export destination for Canadian pork and Canada supplies roughly 54% of U.S. pork imports or about $1.2 billion annually.”
Canada also exports weaned pigs and market hogs (roughly 5% of total U.S. supplies), which (would) also be subject to the tariff and prices will adjust.
“We do not see any meaningful change in the flow of animals in the short run, but there could be adjustments to Canadian production if markets became less economic in the longer term,” McCracken explains. “While not yet implemented, Canada has suggested it will respond with retaliatory tariffs on U.S. pork imports which would weigh on the cutout.”
Mexico
Tariffs on U.S. imports of Mexican pork would have a relatively limited impact, but could easily result in retaliatory tariffs on U.S. pork as they did in 2018-19, McCracken says. Mexico is the largest export market for U.S. pork with annual sales of $2.6 billion or roughly 30% of total U.S. pork trade. The largest share of export sales to Mexico are bone-in hams, accounting for about half of U.S. ham production.
“While the situation remains fluid, retaliatory tariffs on U.S. pork would likely slow trade and weigh on U.S. pork values as we experienced during the previous round of tariffs,” McCracken says. “While trade flows are likely to remain somewhat consistent given the highly integrated nature of the U.S. and Mexican markets, tariffs would raise the cost of doing business for our Mexican customers and likely open the door for foreign competition. Weaker sales would weigh on U.S. pork values (and ultimately hog prices) here in the states.”
While no formal retaliatory tariff has been announced from Mexico, it’s important to note the U.S. currently supplies 82% of Mexico’s current pork imports and roughly half of Mexico’s annual pork consumption needs.
“It would be difficult, in our opinion, for Mexico to maintain tariffs in the long run,” McCracken says.
What to do?
Producers may also be wondering what they can do in the meantime as trade talks continue.
“There may be some additional relief on feed costs assuming tariffs slow exports of corn and beans,” McCracken says. “Lower feed costs are likely to be offset with higher costs of equipment and building materials, although the industry has telegraphed the likelihood of these increases which will likely limit their immediate impact. Weaned pig prices have also moved higher and could see additional upside, weighing on producer returns.”
She adds that import tariffs will have a limited impact on the industry, whereas retaliatory tariffs (if applied) on U.S. pork will weigh on the cutout and hog prices.
“With nearly 30% of U.S. pork exported annually, any slowdown in export volumes would have a ripple effect on the entire industry,” McCracken says. “Producers and packers should remain nimble, communicate with their bankers regularly, conserve cash and avoid building inventory.”
Read more: Industry Comments on Retaliatory Tariffs on U.S. Pork and Beef
Trump Delays Tariffs for Goods Covered Under Mexico, Canada Trade Deal
