Trade War is Here – Now What?

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“Risk-Off” Trades Weigh on Futures

Hog futures also fell sharply following the U.S. tariff announcement and China’s swift retaliation. With an effective tariff rate of 81%, selling pork to China has become nearly impossible.

Although China now represents a smaller share of total U.S. pork exports, just 6% by volume in 2024, it remains the dominant market for U.S. pork variety meats (offal). Last year, U.S. exporters shipped 293,000 metric tons of variety meats to China, accounting for 55% of total variety meat exports. These shipments were worth $646 million, nearly double the $347 million value of pork cuts exported to China.

While some pork cuts can be redirected to other markets, finding alternative buyers for variety meats is far more difficult. As a result, exporters may be forced to significantly discount this product to offset the additional 44% tariff imposed since the start of the year.

The pork market had been bracing for possible tariffs on Mexico and Canada—and the retaliation that might follow—but so far, that outcome has been avoided. Still, uncertainty remains about the potential responses from Japan (the second-largest export market) and South Korea (the fourth-largest).

Other markets—such as Colombia, Australia, and the Dominican Republic—have stayed quiet for now, likely hoping for a resolution through bilateral negotiations.

Less Pork Expected From Europe

The new tariffs are already affecting U.S. imports of European pork. While Canada remains by far the largest supplier of pork to the U.S. and is currently exempt from the new duties, imports from Europe now face a 20% tariff.  Expect to pay more for Italian prosciutto or Spanish serrano ham. Small-sized bellies from Denmark and Poland are likely to be more expensive. 

Fortunately, Canadian feeder pig imports, which the market feared might be included, will not be subject to tariffs. While prices for certain European items will rise, the overall impact on U.S. pork imports is likely to be limited.

Demand Concerns

As with beef, demand remains a central concern for the pork market.

Unlike beef, which saw record-setting demand in recent years, U.S. pork demand peaked in 2021 and 2022, when consumers were spending more at grocery stores, but has since declined by 11%.

Particularly worrisome is the outlook for food service demand heading into summer. Weakness in that channel could put further pressure on belly prices, which are already being priced lower in futures markets, signaling a more bearish summer outlook.

Pork Market for Spring and Summer

Change in Expectations for Pork Prices This Spring and Summer

June lean hog futures are currently trading around $91 per hundredweight (cwt), which is about $15 (-14%) lower than where they were back in February. This drop is a reminder that when the market gives producers a chance to lock in good profits, it’s good to take it. Many likely did. Those who hedged will be better protected, at least in the short term, as the U.S. shifts its trade policies.

If the U.S. government uses the next few months to renegotiate trade deals, the impact on pork exports might not be too bad. But if the policy changes push the economy into a recession, causing people to spend less, hedging won’t offer as much help. Ideally, the goal here is better trade terms, not just raising revenue through tariffs.

Lean Hog to Cutout Spreads

Last year, around the time the June futures contract expired, the difference between the CME index and pork cutout prices was about $9/cwt, the widest gap in three years (see chart). That happened partly because hog supplies were larger than expected.

This year, USDA’s recent Hogs and Pigs report suggests supplies will be slightly lower, with a 0.2% drop in the pig crop for the Dec-Feb period (also consistent with the market hog inventories). That means the price gap may not be as wide this time.   One wildcard is China. Tariffs on U.S. pork variety meats could reduce the value packers get from those products, so they may try to make up for it by putting more money on the meat.

Pork Cutout Implications

If we assume the same spread as last year, current futures suggest pork cutout prices around $99/cwt, maybe slightly under. Will prices for fresh pork cuts stay below last year’s levels? And if they do, how much lower will they go?

Loin prices have underperformed recently vs. 2024, though the comparison is tricky due to the timing of Easter. But yesterday the cutout notched a robust gain and is once again near year ago levels. Given high beef prices and rising chicken breast prices, it wouldn’t be surprising to see pork loin values in June approach, or even surpass last year’s levels at over $100/cwt.

Picnic cuts are doing better than last year, but pork butts have been lagging, down about 8% compared to a year ago. In June 2024, pork butts averaged $128/cwt. Will they be cheaper this year? Maybe, but don’t count out strong retail demand in May and early June. If shoppers are looking for good value, pork butts could be a great deal for grocery stores to promote. The current price offers some nice opportunities for sales and features.

That brings us to two big question marks for summer prices: hams and bellies.

Ham prices carry more risk if trade tensions with Mexico ramp up again. So far, things have been calm, but the situation could still shift. A pork cutout price below $100 would suggest ham values around $85/cwt, lower than recent levels. Belly prices are currently around $130/cwt, which is similar to last year.

Price Chart

Forecasts