U.S. Tariffs and Hog Market Clearing Prices
https://www.wallacesfarmer.com/livestock/kill-capacity-exports-sway-hog-market
This year, the U.S. has enacted trade tariffs between both Mexico and China, some of which have affected U.S. pork exports. Mexican duty rates pork entering from the U.S. jumped from 0% to 20% by July, and in just 2 months, duty rates for U.S. pork entering China rose by 50%, going from 12% to 62% in early July. The result of these tariffs is that in the summer of this year, market clearing prices for U.S. hogs dropped from around $63 in June to less than $50 come early August. How exactly does increasing foreign import duties of U.S. pork affect market clearing prices this way? Let’s take a look at this from a networks and markets perspective.
In this network, the sellers are hog suppliers from around the world, and, likewise, buyers are international pork customers. By adding duties on top of the U.S. pork import prices, these tariffs effectively increased the price of U.S. pork to Chinese and Mexico buyers. This means that these buyers are more likely to go to other hog suppliers from other or their own countries where the net price of pork (hog + duty) is lower than the U.S.’s. For U.S. hog markets, this means their market landscape has turned into a buyer’s market, where their supply is now greater than the demand for their products. U.S. hog suppliers hope to avoid creating a backlog of hogs, such as the one that occurred in 1998, where hog slaughter weights increased by 10 pounds, and prices fell dramatically. To do that, they must clear their inventory by setting their prices so that they are once again market clearing for their buyers, whether that is dropping prices to once again appeal to Mexican and Chinese buyers, or to attract new buyers from other countries. Although this market landscape at first seemed devastating for U.S. hog suppliers, pork export volume has increased 8% from last year, remaining steady for Mexican exports. However, value has dropped 3%, indicating that sellers have indeed needed to drop their prices to clear their inventories, although it appears that they have not lost as many of their Mexican and Chinese buyers as initially expected.