Prestage keeping eye on China-U.S. tariff skirmish

Prestage Farms' feed mill on Church Hill Road on the southern edge of West Point.
Staff Writer

Even as analysts debate whether a full-fledged trade war is looming between the United States and China, the impact of some of the tit-for-tat tariff battle already is rippling through West Point and Clay County as hog futures fell to a 16-month low on the Chicago Mercantile Monday.

Continued problems could impact Prestage Farms' operation in West Point although many analysts say that's far too early to forecast. But the head of the family-owned company and the Pork Producers trade association have made their feelings known to President Donald Trump.

Late Sunday, China announced the tariff hike on more than 120 products, including pork, that were consistent with a list published March 23.

Monday, that sent shares of Tyson Foods, the nation's largest U.S. meat processor down more than 6 percent on stock markets.Hormel Foods, a big user of pork products, were down more than 2 percent.

Last year, the U.S. shipped almost 500,000 tons of pork products to China or more than $1.1 billion in products, making it the No. 3 world market for U.S. pork. But it was down 9 percent from the previous year as China's own production increased, experts say.

“China has not been in our pork markets in any major way this year, so that the action is more symbolic than anything that would impact demand significantly,” independent CME livestock futures trader Dan Norcini told Reuters when asked about the overall impact of the tariffs and prices.

Likewise, Dennis Smith, a broker with Archer Financial Services in Chicago, told Reuters that CME’s hog market sell-off was an over reaction to the tariff announcement because of already low pork prices in China.

“The tariff that they (China) slapped on us not going to sharply change the amount of pork we’re going to export this year. Prices in China are at four-year lows, so they do not need our pork,” he said.

But producers still are concerned.

“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, president of the National Pork Producers Council.

And while pork producers watch, some others got some good news from China's list of tariffs, especially soybean farmers, which weren't on China's list. China is a big market for Mississippi producers.

“China is reacting mildly to a set of tariffs that have largely been rolled back for almost everyone except China,” said Joe Brusuelas, chief economist with the financial advisory company RSM. “Trade friction is a natural state of affairs in the international economy and we’re engaged in a spat.”

Today, the Trump administration is scheduled to detail additional tariffs. U.S. trade representative Robert Lighthizer has said the goal is to pressure China to change practices, and plans to target 1,300 product categories, while limiting harm to U.S. consumers and companies.

But the damage to China may account for only 0.1 percent of its Gross Domestic Product, analysts say. In an advisory note to investors, Capital Economics wrote that existing tariffs will have “a barely perceptible impact” on China’s wider economy. Targeting $60 billion of products by the US adds up to only 0.25 percent to China’s GDP last year, according to wire services.

The existing measures are unlikely to come close to reducing the annual US-China trade imbalance by $100bn as the administration has demanded. And China, holding more than $1 trillion of US treasury bonds, is playing with a strong hand.

“The key uncertainty now is whether Trump sees the tariffs as an end in themselves, or whether they are followed by further escalation,” according to the advisory note.

But North Carolina-based Prestage Farms still is paying close attention, especially since the company is building a new plant in Iowa that is designed to export to China. And the Clay County operation helps supply parts of the company's Iowa system.

"We are building that plant with the intent to be eligible to export to China. We certainly are prioritizing the design of the plant to be able to meet the requirements of China," Ron Prestage, president of Prestage Farms, told China Daily referring to the plant in Eagle Grove, Iowa that will employ 900 people once fully operational.
Prestage said the company's CEO was in China two weeks ago talking to various distributors in China.

"The [Chinese] distributors were very interested because they know we are building the most modern plant in the U.S. with interest to sell in China. They were very positive and hope to buy U.S. pork from Prestage," Prestage was quoted as saying in North Carolina media outlets.

"This is not an issue between U.S. pork producers-processors and importers-retailers in China. The problem is among the politicians. We are delivering a very clear message to our government that they resolve the issues and keep the market open," Prestage added.

."I think President Trump is the kind of leader who makes bold statements to get everybody's attention but makes practical decisions down the road. I hope our governments get those issues resolved," Prestage said.

Prestage Farms employs about 200 people at its West Point operation, which has been in business since 1991.