Accelerating trade war to throw Minnesota hog farmers into the red

Minnesota’s pork producers, already stung by tariff hikes from China, are now being whacked with a round of duties from Mexico.

It’s all part of a growing trade war, with longtime U.S. allies counterpunching after President Donald Trump imposed a round of tariffs on metal imports.

Minnesota is the nation’s third-largest hog-producing state, and Mexico is the largest market for U.S. pork exports by volume.

Hog growers in the state are part of the “collateral damage,” said Dave Frederickson, commissioner of the state Department of Agriculture. Hog prices have fallen since winter, and prolonged trade troubles could deeply damage the state’s hog growers.

“Some will go out of business, and there’s no doubt that you can blame trade for part of that,” Frederickson said.

Mexico said Tuesday it would impose tariffs of 20 percent on U.S. pork, apples and potatoes, as well as duties of 25 percent on certain U.S. cheese products and Tennessee whiskey — covering about $3 billion of goods altogether.

Minnesota ships about $54 million worth of pork to Mexico annually. The state also exports a considerably smaller of amount of cheese and potatoes to Mexico.

The Trump administration last week hit Mexico and Canada with tariffs of 25 percent and 10 percent respectively on steel and aluminum, citing national security concerns.

Canada shot back last week with tariffs amounting to nearly $13 billion on a host of U.S. goods. This week was Mexico’s turn. Mexico’s tariff on U.S. pork leg and shoulder cuts starts at 10 percent, but will rise to 20 percent on July 5.

Earlier this year, China raised its tariffs on U.S. pork from 12 percent to 37 percent. China also is one of the biggest markets for U.S. hog exports

“Basically, growers have gone from projecting a profit to projecting a loss,” said David Preisler, CEO of the Minnesota Pork Producers Association. Early in 2018 before the tariff threat, Minnesota hog growers would have been generally looking to earn about $10 per pig; now the outlook is a loss of about $15 per animal.

The impact among Minnesota’s 3,000 hog farmers will differ, Preisler said. Those who hedged against falling prices in futures markets — an increasingly common practice among livestock growers and crop farmers — will be better insulated against losses.

Greg Boerboom, a hog grower near Marshall, did just that before hog prices fell this year, essentially locking in a profit for his current production. “We can get by for a while. But you can only hedge so far in advance.”

Given current market uncertainties, some hog growers are already cutting back on capital spending, said Boerboom, who operates a 300,000-hog farm with his wife and two adult sons, and is currently president of the state pork producers association.

“I hope the politicians can get this figured [out] and solve the problem before it impacts us too much,” he said. “The tariff basically raises our price by 20 percent to Mexico. ... NAFTA and free trade with Mexico is just critical for the U.S.”

The Trump administration has pushed to rewrite NAFTA, or the North American Free Trade Act, with Mexico and Canada. That pact and other trade agreements have helped to significantly expand export markets for the pork industry, said Brian Buhr, dean of the University of Minnesota’s College of Food, Agricultural and Natural Resource Sciences.

Pork exports also have been boosted over the long term by rising incomes, which has sparked higher demand for meat globally. The greatest threat to U.S. meat exporters has been a slowdown in global income growth, Buhr said. Now, trade wars are a significant danger as well.

The longer that U.S. exporters are hobbled by trade restrictions, the greater the potential economic damage, Buhr said. That’s because there are plenty of competitors in global agricultural markets, and for them, “this is an opportunity.”

Mexico, in rolling out the U.S. tariffs Tuesday, noted that it would make up any slack by importing more pork from Europe.

As tariff walls go up in Mexico and China, the domestic U.S. pork market could swell with supply, putting downward pressure on prices.

There’s a potential silver lining, for consumers at least: lower retail pork prices in the near term.

Link to original article in Star Tribune.