Chinese tariffs muck up market for U.S. pig parts and hog farmers
U.S. pork producers count on Chinese demand for the parts of the pig that Americans won't eat. Now it's in jeopardy.
Facing farm sector trade impact, Republicans in GOP-heavy Sioux County, Iowa, won’t commit to voting for Trump. (March 30) AP
A pig known as "Zhu Jianqiang", who became a national icon after it survived the devastating earthquake 10 years ago, walks next to schoolchildren at a museum in Anren on April 25, 2018. The pig, known as "Zhu Jianqiang" which means "Strong Pig", shot to fame after he was discovered alive beneath rubble, 36 days after the 7.9-magnitude earthquake struck Sichuan province on May 12, 2008. (Photo: JOHANNES EISELE/AFP/GETTY IMAGES)
Fengjiang Wang loves a hearty bowl of steamed pig's blood pudding.
“You fill a giant bowl with half water and half pig blood, add a chicken egg and a little seasoning, put it in a steaming pot for half an hour, then you have delicious blood pudding,” says Wang, who lives in Songyuan, China.
Diners like Wang have provided a market for U.S. pork producers, who have counted on China to buy the feet, intestines, tongues, lungs, kidneys and other parts of pigs that Americans mostly shun. But China's retaliatory tariffs are undermining a key market that took nearly 60 percent of American pork offal exports in 2017.
Before the tariffs were increased, the Chinese had been buying more than 91 percent of U.S.-produced pig feet and 96 percent of pig heads, two of the largest categories for pork by-products, or what the industry refers to as "variety meats," according to the U.S. Department of Agriculture.
“It’s a real big blow to producers to lose the Chinese market because of the variety meats,” said Ken Maschhoff, whose The Maschhoffs hog farming operation based in Carlyle, Illinois, is one of the largest privately-held of its kind in the U.S. "It is a $30 million impact to our operation," typically making up a third and as much as half his profit.
In China, pig feet and ears are delicacies, often more expensive in rural markets than cuts like ribs and hams that Americans enjoy, according to Wang, a pork wholesaler.
“I don’t care that much about the tariffs on ribs and loins,” Wang said. “But pig ears and feet are very valuable since they are expensive, and a pig only has two ears and four legs.”
Since Mexico also joined China to impose tariffs on American hogs, the pork industry has taken a double hit. “It has been a little bit of a perfect storm,” said Ben Johnson, partner at New Frontier Capital Markets, an agricultural-commodity brokerage.
For now, the meat export issue as it relates to China is largely confined to pork. China has banned chicken imports from the U.S. because of avian influenza since January 2015. And American beef was only reintroduced into China last year after more than a decade because of issues around mad cow disease.
Before China imposed its retaliatory tariffs, the price of hogs was running at $76 per hundred pounds. Lately, prices for August delivery have fallen to $61, causing a significant impact on the farmers and the industry in general, according to Johnson.
One of the largest American meat producers, Tyson Foods, recently reported this year’s profit will fall short of its previous forecast because of plummeting pork prices caused by the trade dispute.
Profit margins were already thin, and variety meats could make the difference when it comes to avoiding losses. They make up as much as $5.25 to $5.50 in profit per hog out of the at least $10 per animal that producers need to remain profitable, according to Maschhoff. “I estimate the average hog farmer can only sustain the losses caused by tariffs up to two years,” he says.
American hog farmers are striving to cope. They are trying to store more variety meats while waiting out the tariffs. And they are stepping up their marketing efforts in other markets, like Japan, South Korea, the Philippines and Peru, according to Donald Beermann, an animal science professor at Iowa State University.
“Supplies are continuously moving up," says Johnson, the agricultural-commodity broker. "We are going to have record pork production for the second and third year in a row.”
Making matters worse, China has dramatically increased its own domestic pork production. Though they were aimed at the U.S., the tariffs imposed by China could help halt a fall in prices caused by oversupply.
For the first quarter, pork prices in China decreased 31.9 percent compared with the same period last year because of excessive supply, according to China's Ministry of Agriculture and Rural Affairs.
“They are just swimming in pork in China,” said Dan Basse, president of AgResource, a global agricultural market analysis and consulting firm.