Jim Long Pork Commentary: China puts tariffs on US pork

Tue, 10 Apr 2018

Last week China put a 25% tariff an all US Pork that would be imported. Let’s look at US Pork Exports for February 2018.

We calculate that China imported 8.5% of US pork exports in February. This percentage is relatively consistent to percentage of exports in the last half of 2017.

In 2017, the US exported 26.6% of its total pork production. If we use that percentage in February to get to total US pork, we arrive at 837,360 t. If China is at 18,933 t imported for February, we use our farmer arithmetic to calculate China’s imports from USA to be at approximately 2.2 % of the total US pork production.

2.2%? Seems to us China effect on lean hog futures and cash prices are out of perspective with prices declining up to 6-8¢ per lb. The emotional reaction in our mind is far more dramatic them the reality of market share.

Relative to other Global Markets, US prices are quite low. The below chart gives a very clear comparison. If we use US pork cut-outs from last Friday of 67¢ lb., its hard to imagine US pork exports will not be quite competitive relative to European prices 50 to 70 % higher.

Observations:

We expect the US market to begin to recover very soon. Price points are low and that will stimulate demand. China’s small percentage of market share will be filled by other players, but this turn could open opportunities for US pork in other markets. Markets are made of some reality and some emotion.

Last week the US corn price had a quick drop because of potential tariffs. After the market dripped some wizards, realized that the US, for all intents and purposes, exports no corn to China - the market recovered. Goes to show a market moving on emotions, not reality. My deceased friend, Doug Maus, used to say “Trading in Chicago is just like playing in Las Vegas, but with no rules”

We expect the hog market to recover soon. The reaction of a tariff on just over 2% of total US Pork exports has lead to a price adjustment greater then what should be. At same point some sanity will return.

This coming week, we will be in Great Britain.