US slaughterhouses in difficult split

Margins at pork processors, including major players such as Tyson Foods and Smithfield Foods, are under considerable pressure. According to American analysts, this is due to the uncertainty caused by the trade war. Both China and Mexico imposed an import tariff on American pork; this in retaliation for the tariffs that US President Donald Trump imposed on aluminum and steel.

Meanwhile, President Trump has many more Chinese goods charge with high import tariffs. The end of the trade war is probably not yet in sight.

Pig prices are actually picking up
That is precisely what is sour for the American pig sector China en Mexico are the most important customers. Meat export prices are therefore under considerable pressure. However, the pork price in the US is actually increasing. Since the beginning of April, the pork price (the Iowa/Minnesota quote) has risen by as much as $0,80 to $1,84 per kilo. This causes the knife to cut into the margins on both sides.

(Text continues below the chart)In no time, the Iowa/Minnesota listing has increased significantly in value. 

An American research agency has calculated that slaughterhouses will make a loss of more than $5 per slaughtered pig in mid-June, the largest negative margin since May 2015. According to analysts, slaughterhouses face 2 choices: or they reduce the number of slaughters (which allows them to reduce variable costs). pressure), or the slaughterhouses are pushing for falling pork prices and rising meat prices.

The latter does not seem feasible. Due to the opening of 4 large slaughter locations, the American pig supply is tight, which means the market is to the advantage of producers. The summer period is usually the high season for domestic meat consumption; the slaughterhouses therefore need large numbers. Reducing the number of slaughters is also not an option, because the fixed costs continue and slaughterhouses are afraid of losing market share on the domestic market. This leaves slaughterhouses in a difficult position.

Worrying situation
Even though pork prices are rising, American pig farmers are concerned about the situation. With the imposed trade tariffs, it is likely that the price will drop again in the long term. The rising pig price fits in with the seasonal pattern. Historically, quotes reach their highest level in mid-July. This is quite fast. That is why the National Pork Producers Council (NPPC) is looking for additional sales opportunities in new countries.

The organization hopes that Thailand will quickly revoke their import ban. The Asian country has been banning pork exporters from the US for some time due to the use of the controversial drug 'Ractopamine'. Whether these charm offensives will come to fruition will remain to be seen in the coming months. For the time being, Trump's protectionist policy has seriously shaken the American pork market.