Trade war puts the hoof into U.S. pig part exports to China

Seaboard

17/07/2018 13:00

By Tom Polansek
    CHICAGO, July 17 (Reuters) - Before the U.S.-China trade
war, American pig processors exported nine out of every 10 pigs'
feet and heads they shipped overseas to China and Hong Kong -
for prices higher than they would fetch anywhere else.
    Those parts and others that most Americans won't eat -
hearts, tongues, stomachs, entrails - have a special place in
Chinese culinary culture and, consequently, in the profit
margins of U.S. pork exporters.
    "You often hear that the products are what keep the plants
running," said Erin Borror, economist for U.S. Meat Export
Federation, a trade group.
    The pipeline for these profitable pig parts, known
collectively as offal, is closing fast after China slapped two
tariffs on U.S. pork totaling 50 percent.
    That's forcing U.S. processors to sell an increasing amount
of such parts for pennies to be rendered into food for pets and
livestock.
    U.S. shipments of byproducts affected by the duties fell by
about a third in April and May combined, after China imposed the
first 25 percent tariff on American pork in April, according to
the latest data from the U.S. Department of Agriculture.
 urn:newsml:reuters.com:*:nL3N1R551V 
    On July 6, Beijing implemented an additional 25 percent duty
as the world's two largest economies slapped tariffs on $34
billion worth of each others' goods.  urn:newsml:reuters.com:*:nL4N1TN2XW
    U.S. President Donald Trump has said the U.S. tariffs -
which have provoked equivalent Chinese retaliation - aim to
close the $335 billion annual U.S. trade deficit with China.
 urn:newsml:reuters.com:*:nL4N1U206X 
    The USDA declined to comment on the drop in offal exports.
    Exporting pig offal to China has been a money-maker because
consumers there enjoy its strong flavor. Stewed pigs' feet with
white beans, for instance, is a famous dish from Sichuan
province, one of the country's culinary capitals.
    At least one product exported to China has almost zero value
anywhere else: hind pigs' feet. Rear feet are nearly impossible
to sell elsewhere because they have holes in them from where
hogs are hung upside down in packing houses, which turns off
consumers in other countries, said Dermot Hayes, an agricultural
economist at Iowa State University.
    "They go from zero value outside of China to a significant
value when the Chinese market is fully open," Hayes said.
    
    ALTERNATIVE SUPPLIES OF STOMACHS, LIVERS
    China will likely have little trouble finding supplies to
replace U.S. pig offal, analysts said. 
    An expansion of its domestic hog industry had already made
buyers less dependent on American pork before the trade
tensions. 
    Chinese buyers could also import more from Europe, where hog
prices have been trading at their lowest levels in at least two
years, analysts said. 
    "The Chinese aren't going to get hurt by this," said Ken
Maschhoff, chairman of The Maschhoffs, the largest family-owned
U.S. pork producer. "Chile or Europe or somebody else is going
to say, 'Well, we've got a bunch of stomachs or livers or feet
that we're not using...'"
    The slowdown hurts major processors in the United States,
such as WH Group Ltd's  0288.HK  Smithfield Foods Inc; Seaboard
Foods, a division of Seaboard Corp  SEB.A ; and the JBS USA unit
of Brazil's JBS SA  JBSS3.SA . Such companies benefited from
record total U.S. offal sales of more than $1.1 billion in 2017.
    Smithfield, the biggest U.S. pork processor and exporter to
China, declined to comment. The company, owned by China-based WH
Group, sells offal, jowls and lard, according to its website.
    Meat processor Tyson Foods Inc  TSN.N  also declined to
comment. Seaboard and JBS did not respond to requests for
comment.
    Margins for U.S. pork processors are under pressure due to
the impact of the trade fight and last month slipped to their
lowest level in three years.  urn:newsml:reuters.com:*:nL1N1TM10J
    WH Group's stock price has tumbled 28 percent so far this
year. Tyson shares are down 19 percent and Seaboard shares have
dropped 13 percent.
    
    $860 MILLION IN LOSSES
    The average value of U.S. offal exports to China was about
76 cents per pound in 2017, according to the U.S. Meat Export
Federation. 
    If packers do not sell them elsewhere for human consumption,
the byproducts will be rendered in the United States for about
18 cents per pound - a decrease equating to a loss of $1.55 per
hog for the volume exported to China, the federation said.
    Overall, it estimated lower offal prices could translate
into losses of $860 million for the U.S. pork industry over the
next year. Processors will try to pass on losses to farmers by
paying less for live hogs, Hayes said.
    "It is the pork farmer who suffers," he said.
    Lower demand also has processors rendering more offal into
animal feed, according to the federation. Prices in that segment
could come under pressure, however, as more processors try to
grab market share.
    Ohio-based JH Routh Packing Company sells most of its offal
to feed animals at less than 20 cents per pound, sales manager
Tony Stearns said. 
    "Everybody who can sell the stuff," he said about offal,
"they're pretty much selling everything they can."
    Pet food makers could use more offal in their products in
response to an increase of supply, said Dana Brooks, president
of the Pet Food Institute, an industry group that represents the
pet units of companies including Nestle SA  NESN.S , which sells
Purina, and Mars Inc, which sells the Pedigree and Whiskas
brands. 
     "The parts that we don't eat here in America for pork often
have nutritional value to our pets," Brooks said.

 (Additional reporting by Theopolis Waters in Chicago and
Dominique Patton in Beijing
Editing by Brian Thevenot)
 ((Thomas.Polansek@thomsonreuters.com; +1-312-408-8556; Twitter:
@tpolansek; Reuters Messaging:
thomas.polansek.thomsonreuters.com@reuters.net))