The beef industry, like others sectors of U.S. agriculture, faces considerable losses because of the tariff wars between the U.S., Canada, Mexico and the European Union. The losses are not as severe as those seen in hog, corn and soybean production. But the tariffs imposed on beef products exported to China and Canada will cost the industry hundreds of millions of dollars per year in lost sales.
China in July imposed an additional 25 percent duty on U.S. beef exports to China. This will severely limit exports the remainder of this year, meaning export losses of more than $30 million, says the U.S. Meat Export Federation. But the real impact is the lost opportunities for export growth over the next couple of years. It estimates that exports to China could grow from the pre-tariff 2018 value of $70 million to $430 million by 2020. Lost opportunities over the next couple of years will be in the hundreds of millions of dollars if the tariffs are not quickly returned to the normal 12 percent, it says.
Canada had earlier (on July 1) imposed $170 million of tariffs on cooked beef products. It is the U.S.’s largest market for these items so the tariffs will have an impact on some companies’ business. Canada’s beef tariffs were part of a package of$12.6 billion worth of retaliatory tariffs on a wide range of U.S. goods.
The categories of beef items subject to tariffs included beef jerky, cooked meatloaf, meatballs, beef pies, stews, ground cooked beef, snack packs with meat, and mixed meat TV-style dinners. Fresh and frozen unprocessed beef ?cuts and offal were not affected. Certain processed products like beef sausages, corned beef or beef liver products were also not covered. How long the tariffs remain in place is anyone’s guess, as negotiations over the North American Free Trade Agreement (NAFTA) have so far resulted in no resolution over NAFTA’s future.
Cattle hides meanwhile joined a long list of U.S. food and agricultural exports to face Chinese tariffs. A 5 percent tariff on all wet blue and raw hides going to China took effect Sept. 24. Smaller skins such as calf skins face a 25 percent tariff. The tariffs are part of another $60 billion of tariffs imposed on U.S. exports by China. Its action came in retaliation for the U.S.’s imposition of new tariffs on another $200 billion of Chinese goods, also on Sept. 24. China had already put tariffs on 517 U.S. food and agricultural products.
China’s tariff on hides might have little impact on hide prices in the U.S., as prices are already extremely weak. A possibly greater impact on hide prices is that leather products made in China and exported to the U.S. are among the new tariffs imposed on the $200 billion of Chinese goods.
The U.S exports as much as 80 percent of its cattle hides to China. China is by far the largest importer of hides and skins in the world, supplying the massive leather production industry, says USDA’s Foreign Agricultural Service (FAS). But its imports over the past five years have been largely stagnant and recently began declining. In 2018’s first quarter, imports were down nearly 10 percent from the same period last year. According to key local industry contacts, a combination of internal and external factors has contributed to this reduced demand and has increased the cost of producing leather domestically. These factors include material substitution, spiraling labor rates, tightening environmental policies, industry consolidation and trade issues, says FAS.
Hide prices are also depressed because U.S. cattle slaughter is up 2.7 percent on last year. Just over half the nearly 600,000 head increase is due to larger cow slaughter this year than last year. This is coinciding with weaker demand for leather globally than a year ago. The result is that prices for steer and heifer hides are down 25-30 percent on this time last year and prices for cow hides are down as much as 262 percent on last year. The increase in cow slaughter means the price of a branded cow hide has slumped from $37-38 last year to $13-15.
As noted, U.S. tariffs on Chinese leather exports might have more impact in the U.S. on leather goods and hide prices and less impact in China. Chinese leather products that now have a 25 percent tariff include luggage, bags, gloves, belts, wallets, furniture and auto seats. In the 12 months to July 31, China exported to the U.S. $451.5 million worth of leather handbags. It exported $258 million of leather gloves. Should the U.S. tariffs remain on these goods for any length of time, China would likely further reduce its buying of U.S. hides, and Americans would pay more for everything from Gucci handbags to baseball mitts. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
