March 23, 2018 / 6:23 PM / 4 months ago

UPDATE 1-U.S. pork to feel further chill from China tariff threat

* Chinese domestic pork prices at lowest in four years

* Demand for imports already weaker on low local prices

* Tariffs could spur Chinese demand for European pork (New throughout, adds stock and futures price moves, comments from U.S. trade groups)

By Dominique Patton and Tom Polansek

BEIJING/CHICAGO, March 23 (Reuters) - China's threat of steep tariffs on American pork imports knocked down U.S. hog futures prices and shares of producers on Friday, while increasing fears of hard times for farmers already facing weaker demand from the world's top buyer of the meat.

U.S. farmers have worried for months that rising trade tensions would hurt exports of soybeans and other agricultural products. China imported $19.6 billion in U.S. farm goods last year, with soybeans accounting for $12.4 billion.

Without giving a time frame, China's commerce ministry said the government was considering a 25 percent tariff on U.S. pork, along with other duties. It did not announce potential tariffs on soy.

China is a key market for U.S. pork because importers buy parts of the pig, such as feet, elbows and innards, that command little value in most countries. Last year, American farmers exported $1.1 billion of pork products to China and Hong Kong, making it the No. 3 market by value.

Additional tariffs threaten suppliers such as Smithfield Foods, owned by China's WH Group, and JBS SA . WH Group shares dropped 4.7 percent, while JBS shares lost 1.9 percent.

U.S. lean hog futures slid to their lowest since October.

"We sell a lot of pork to China, so higher tariffs on our exports going there will harm our producers and undermine the rural economy,” said Jim Heimerl, a pork farmer in Ohio and president of the National Pork Producers Council.

Tariffs, along with a brewing trade war between China and the United States, could increase China's demand for pork from countries such as Germany and Denmark, importers said.

China also will likely rely more on domestic supplies, following the expansion of large-scale pig farms. Pork prices there are hovering around a four-year low of 10 yuan ($1.58) per kg, squeezing demand for imports.

"Even without the tariffs, with such low prices, we will use more domestic pork for our Chinese business," said Luis Chein, a company director at WH Group, China's top pork producer and its biggest importer of U.S. pork.

WH Group's Smithfield and rival U.S. producers have remade the nation's hog industry to serve China by shunning a growth drug called ractopamine, which Beijing bans. However, exporters still face competition from Canada, which has moved away from the drug more quickly, and other suppliers.

"China is a price-sensitive market," said Dan Halstrom, chief of the U.S. Meat Export Federation. "Any tariff rate increase would affect the competitive position of U.S. pork." (Reporting by Dominique Patton in Beijing and Tom Polansek in Chicago; additional reporting by Beijing Newsroom; editing by Tony Munroe, Tom Hogue and David Gregorio)

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