Chinese tariffs could affect southern Illinois agricultural producers including Carlyle based pork producer, The Maschhoffs
What's good for the local steel mill isn't necessarily good for the local hog farm.
A trade war with China could end up pitting some metro-east industries, like those involving steel production, against others, such as farming.
As a response to U.S. tariffs on steel products from Asian countries, China has announced plans for tariffs on U.S. goods and products, including a couple of commodities that come from Southern Illinois — including pork.
China has called for a 25 percent tariff on pork products imported from the U.S., and possibly a tariff on U.S.-grown soybeans.
One local business that could see effects of Chinese tariffs is the Carlyle-based The Maschhoffs, the fourth-largest hog grower in the U.S. There are about 500 hog farms — many of them in Southern Illinois — that are "production partners" with The Maschhoffs, producing pork that ends up on dinner tables across the globe.
The business raises about 5 million market live hogs a year, which are sold to packers and processors, who then sell the product to restaurants, other domestic consumers and foreign buyers, said Josh Flint, the associate director of communications for Maschhoffs.
Maschhoffs is one step removed from the tariffs placed on U.S. pork products; however, the effects can trickle down to the hog grower.
About 25 percent of pork produced in the U.S. is exported to other countries.
“When you look at demand sectors, the export market is a significant sector in terms of size,” Flint said.
Those tariffs appear to have had an immediate effect on hog futures, Flint said.
Three weeks ago, a whole live hog sold for about $140 to $150. With the Chinese tariffs in place, a live hog sells for $105 to $110.
"If tariffs or some other demand-interruption event was to happen, it would drive down the lean-hog futures index, which then has the potential to drive down the actual cash sale price of the animal,” Flint said.
Flint said the company, which employs about 1,200 people and works with 500 family farms in nine states, still is taking a long-term view on prices.
“It will have an impact,” Flint said. “The important thing to remember about hog prices, about commodity prices, they’re very cyclical. So in terms of long-term future, pork is the largest consumed meat in the world. So the demand will be there, I don’t anticipate large percentages of populations not eating pork in the future."
He added, "Yeah, it’s going to affect us in the near term, but in the long term, we remain extremely bullish on pork prices.”
Flint said it's difficult to determine the exact cost to raise a hog before it is sold to a packer or processor. The cost of feed fluctuates and can account for two-thirds of Maschhoffs’ costs. Animal health and transportation costs also play a role in the company’s expenses.
He said current futures prices, as well what live hogs sell for, are below the production costs for U.S. pork producers.
“As a result, it’s fair to say prices are currently below break-even for U.S. pork producers,” Flint said.
However, Maschhoffs isn’t against the Trump administration’s efforts, which includes tariffs of foreign steel and work to protect intellectual property, which have led to the Chinese tariffs.
“From a conceptual standpoint, the administration’s strategy of protecting intellectual property, trying to get on better footing in terms of trade balance, we are absolutely supportive of that,” Flint said. “You think of pig farming, it sounds fairly simple. Actually a big component of the Maschhoffs' growth has been the commitment to innovation, so we’ve implemented a lot of innovative technologies over the years that have allowed us to grow in terms of size and scope. So we personally, absolutely value intellectual property, and we obviously hope other sectors in the U.S. business climate enjoy that same protection.”
The Chinese tariffs on U.S. goods is in reaction to President Donald Trump slapping a 25 percent tariff on foreign steel aimed to stop steel dumping by China, as well as $50 billion worth of tariffs on Chinese imports put in place as a response to intellectual property theft by China.
Soybeans affected, too?
Whether tariffs on soybeans will hurt local growers remains to be seen, said Tom Jett, the manager of the St. Clair and Madison counties farm bureaus. Each county has about 1,000 active farmers.
Jett said soybeans are a major crop for metro-east farms.
“It’s a global market," Jett said. "Its exact dollar impact on farmers, I don’t think anybody knows.”
He added, “It has the potential, I suppose, to affect the markets in not a good way, because really what that is, as far as exports to China, is a tax."
Jett said he sees farmers on both sides of the issue.
“They’re not 100 percent ‘this is terrible.’ But they’re not 100 percent in support of the tariffs either,” Jett said. “I think it’s a wait-and-see game on our point at the moment.”
Jett said soybean farmers don’t have arrangements for who will buy their product.
“It all gets delivered to the river, shipped down the river to New Orleans on a barge, gets loaded on a ship and goes somewhere," Jett said. "It might be China, it might be Europe, could be anywhere. It depends on who made a deal to buy a shipload of soybeans at the moment.”
Jett said ultimately, everyone will have to wait until tariffs are in effect to see whether farmers are hurt.
He said if China buys soybeans from Brazil instead of the United States, other purchasers of soybeans who usually buy from Brazil might then end up needing to buy from another country — possibly the U.S.
“Suddenly those soybeans aren’t on the market anymore, so they have to buy them from somewhere, and the rest of the world doesn’t have a tariff on us. Suddenly our soybeans look attractive to them,” Jett said.
Political balancing act
The tariffs are getting reactions from lawmakers. Some, like U.S. Rep. Mike Bost, have districts that cover steel industries as well as agricultural areas.
Bost, a Republican from Murphysboro, said if China puts tariffs on American products, it would be more detrimental to the Chinese economy than to the U.S. economy.
He said the U.S. should see if the Chinese tariffs hold.
“Are they using this … as a saber rattle to try to say 'We want you to back off of this?'” Bost said.
The tariffs on steel, which were announced shortly before U.S. Steel announced it was bringing back 500 jobs at Granite City Works, were imposed in part for national security reasons, Bost said.
“We have to make sure that the knee-jerk reaction that China is doing is not something where, all of the sudden, we’re going to knee-jerk and put us in a danger as far as homeland security or the security of our nation,” Bost said.
Bost said he will continue to work with farmers to make sure they’re still able to sell their product.
“We’re going to work with them to make sure to develop markets where we can. We’ve got to watch the process,” Bost said. “I’ve always been working with my farmers, I will continue to work with my farmers, but I believe this is a balance that has to occur.”
U.S. Sen. Dick Durbin, D-Illinois, in a statement from his office, placed the blame for the Chinese tariffs on Trump.
“Illinois' farmers now join DACA recipients as the latest victims of President Trump’s temper. Illinois is our nation’s largest producer of soybeans, and a top producer of pork, and will feel China's retaliation to threats of a trade war more than most,” Durbin said. “America cannot move forward in a blizzard of tweets and wild threats from this President.”