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Pork Tariffs Sour Industry Outlook

The 2018 outlook early this year was for modest profitability. Now, it has shifted to losses. The reasons are clear. Higher costs and lost exports as China has implemented a 25 percent tariff on U.S. pork that goes into effect today, April 2, 2018. Several forces are driving costs higher, but feed is the primary culprit. Since the start of the year, corn futures are about 27 cents per bushel higher and soybean meal futures are about $55 per ton higher. This means that feed cost are nearly $3 per live hundredweight higher. This is composed of $1.20 higher because of corn prices and $1.75 due to higher meal prices.Other costs of production are rising as well. Energy costs are expected to rise with the government Energy Information Agency forecasting a nine percent rise for on-road diesel prices this year and a seven percent rise in retail gasoline prices. The tight labor market is expected to result in a three percent rise in wage rates. Interest rates are also rising. The Chicago FED reports the average interest rate on farm operating loans in 2017 was 4.9 percent. If that rate rises by 100 basis points this year to 5.9 percent, that is a 20 percent increase. Finally, the Trump tariffs on steel and aluminum will likely put upward pressure on metal prices that are important to buildings and equipment used in pork production.

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Farm Doc Daily
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