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China tariff could eliminate pork profit in 2018

Source: Wikimedia Commons

The United States pork industry fared well in the first quarter, but a combination of growing numbers and a Chinese tariff has one Ag economist predicting prices going into the red in the near future.

AUDIO: Agribusiness Matters 4-4-18

Chris Hurt, Purdue University agricultural economics professor, says the new Chinese tariff on U.S. pork imports has pushed the industry into negative territory. Hurt notes American pork producers were already battling rising production costs.

“Prices of feed have gone higher. That’s great for our corn, soybean and wheat producers, but for hog producers, we’re already looking at a break even to a little bit of profit,” Hurt said. “With this Chinese tariffs, it looks like that’s going to lower U.S. prices.”

Hurt says the 25% duty on American pork will likely price it out of the Chinese market. China imported two-percent of U.S. pork production in 2017. From an economic perspective, there will be some balancing out between lost exports to China and new sales opportunities. However, the overall outlook is still negative for pork prices.

“On a carcass basis – about $2.75 per hundredweight. We have to come back to say, ‘There will be some compensating balance,’” Hurt said. “We know one of those – you lower the price in the United States, we’ll sell some more pork domestically. U.S. exports to China only represented one-percent of the pork they consume, and they can easily buy that shortfall from other areas like the European Union and Canada.”

Hurt says the Chinese were very strategic in placing the new tariff on U.S. pork imports. Pork is a key part of the $3 billion in retaliatory imports China placed on U.S. goods.

Hurt says the Chinese tariff on U.S. pork, along with rising costs, have shifted the outlook for 2018 to estimated losses of $12.50 per head. Uncertainties surrounding the North American Free Trade Agreement (NAFTA) remain a grave concern as well. The United States pork industry exports nine-percent of its output to Canada and Mexico combined.