Impacts of tariffs on pork producers unknown
By KRISTIN DANLEY-GREINER
Longtime Iowa pork producer Dave Struthers felt his stomach plummet when he caught wind of the proposed tariffs the U.S. might impose upon China and. in return, those announced by China as retribution that would hit U.S. pork.
President Donald Trump first unveiled plans to implement $3 billion in steel and aluminum tariffs designed to protect national security. The most heavily impacted country would be China. As a result, China retaliated with its own proposed tariffs of $3 million on U.S. pork, fruit, wine, nuts and other items.
Some economists are quick to point out that these are only proposed tariffs, but producers like Struthers don’t care about that because a shockwave has already been felt.
“We haven’t had the tariffs be put into place but the markets already reacted to the news of them simply being proposed,” Struthers said. “The impact of this on us producers all depends upon how long these threats last. It’s hurting us already and nothing has even happened yet. The full impact will only be known once it finally ends.”
Struthers referenced the grain embargo in the late ’70s and how he believes that attributed to the farm crisis. He said he has never experienced a trade tariff issue in his 32 years of farming.
“We’ve had issues with over-supplies in 1998-1999 when hog producers went through terribly low prices, but then recovered,” he said. “We went through it four more times from 2008 through 2011 when grain prices and energy prices were sky high and the price of meat producers weren’t high enough to meet our costs. So we’ve gone through tough times, but this will be a first.”
To help alleviate any financial stress, Struthers opted to sell some grain sooner than he wanted to.
“We don’t know what will happen, so we opened up some cash flow,” he said. “I could reach out to my banker, but he’s been very supportive of us. I don’t want to set up another line of credit just because people are arguing about an issue that hasn’t even come to fruition.”
When speaking about this issue with others, he said he’s learned that others hope to prevent the proposed tariffs from ever reaching the table.
“One thing is that this president is a business person,” Struthers said. “He knows where he wants to end up at, so he starts with the extreme on the other side then works toward the middle where he wants to be. But the sad part is that this messes with our prices and our livelihood. It causes extreme concern and hopefully is just for the short-term.”
Because of the losses endured from 2008 to 2011, Struthers has already downsized at his Collins farm.
“We were selling at a loss and can only do that for oh so long,” he said. “I am getting out of farrowing and just going feeder to finish.”
Iowa State University economist Lee Schultz commented that while the tariffs are proposed, much work must be done to assuage this “trade conflict.”
“Markets loathe uncertainty and we have seen the markets react negatively,” Schultz said. “Projected 2018 profits in ISU’s farrow to finish model dipped from $11 per head forecast in December, to $8 per head projected in February, to losses of $4 per head for 2018 projected the first week of April.”
January and February 2018 farrow to finish profits averaged about $14.50 per head, Schultz reported. He added the March hog price “skid hammered” margins, still only a small loss is projected for 2018.
“The currently expected breakeven proposition does not sound encouraging,” he said. “But forecast prices still cover all production costs including feed, a full labor return and full depreciation recovery on buildings and equipment. This suggests farrow to finish operations can continue into the future with breakeven returns calculated in this manner.”
Wean to finish production with change in ownership of pigs is another story.
November through February cash and formula prices averaged $52.46 per head, bolstered by strong profit prospects, according to Schultz. These pigs will reach market weight roughly from May through August, with breakeven prices averaging $77 per cwt. This is $8 per cwt higher than current expectations for lean hog prices.
The national breeding herd is 1.7 percent larger than a year ago based on early March producer surveys carried out for the U.S. Department of Agriculture’s hogs and pigs report. Breeding herd additions totaled 21,000 head from December to March. For the March through May quarter, U.S. producers intend to farrow 3.078 million sows.
“This is 2.1 percent more sows than for the same period in 2017,” Schultz said. “Intended farrowings for June through August 2018 are estimated at 3.165 million sows, up 1.4 percent from 2017. A big question is will producers back off on farrowings given the change in the profitability outlook. A mid-March uptick in sow slaughter suggests they might.”
For 2018, the USDA anticipates pork exports to be up 5.2 percent. However, the proposed tariff hike likely will have a “negative tilt” on export growth, Schultz said.
“Chinese market uncertainty makes expanding and diversifying export destinations for pork crucial,” he said. “New and emerging markets in countries such as Colombia, Dominican Republic and Chile, and mainstay markets such as Mexico, Japan and South Korea were strong in 2017 and will be counted on again this year.”
“With over 40 percent of U.S. pork exports going to Mexico and Canada, one could argue that a positive outcome to NAFTA is the biggest piece of the puzzle still in need of certainty.”