Source: Rita Jane Gabbett, MEATINGPLACE, 6/5/18



Mexico today levied punitive tariffs —10 percent effective today, escalating to 20 percent on July 5 — on unprocessed pork (not including variety meats) in retaliation for tariffs on its metal exports to the United States, according to the National Pork Producers Council (NPPC).

The list includes a 20 percent tariff on U.S. hams and pieces of ham, as well as fresh and frozen pork legs, shoulders, and their pieces without bones. The Mexican ministry will also open a 350,000-metric-ton tariff-free quota for imports of pork legs and shoulders from other countries.

Mexico’s decision follows similar retaliation in early April by China, which imposed additional 25 percent tariffs on U.S. pork. According to the NPPC, those actions have already reduced live hog values by as much as $18 per animal on an annualized basis.

“The toll on rural America from escalating trade disputes with critically important trade partners is mounting. Mexico is U.S. pork’s largest export market, representing nearly 25 percent of all U.S. pork shipments last year. A 20 percent tariff eliminates our ability to compete effectively in Mexico. This is devastating to my family and pork producing families across the United States,” said Jim Heimerl, NPPC president and a pork producer from Johnstown, Ohio.

“We appreciate the variety of interests and issues the Trump administration is balancing in its trade negotiations with Mexico, China and other countries. While producers are trying to be good soldiers, we’re taking on water fast. The president has said that he would not abandon farmers. We take him at his word,” Heimerl added in a statement.

According to NPPC, the U.S. pork sector sustains more than 500,000 jobs across rural America. More than 110,000 of these jobs are directly tied to exports of American pork.

This is going to hurt
Trade issues between the U.S. and Mexico are impacting sentiment for U.S. protein stocks and pressuring valuation given increased uncertainty, according to Stephens Inc. analyst Farha Aslam.

“The near term earnings impact is likely limited. However, if the issue lingers, the market impact on prices and profits could become more pronounced,” she warned in a note to investors.

Aslam predicted the move will pressure U.S. pork export prices overall as export customers will likely pull back from the U.S. market in anticipation of a price drop as a result of the Mexican tariff, which will likely put incremental pressure on the U.S. pork cutout and hog prices.

“In the near term, U.S. packers such as Hormel and Tyson will seek to offset the tariff costs by reducing the bid for hogs. Given hog supplies are relatively ample given the slow start of the new hog slaughter plants, the packers should be relatively successful in protecting profits,” Aslam wrote. “In the spring of 2019 the hog supply versus shackle space is expected to be tighter as the new plants ramp second shifts so the ability of the packers to pass along the tariff to the hog producers could be more limited.”

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