Mounting U.S.-China Trade Tensions Whipsaw Hog Prices

Global trade tensions weighed on trader expectations that China will continue to rely on U.S. pork exports, leading to a volatile session in hog futures Monday.

U.S. hog prices on the Chicago Mercantile Exchange took a steep tumble last week, losing 16%. On Monday, most-active October futures shed as much as 5%, trading near 62 cents a pound before rebounding as buyers swooped in.

By the afternoon, the contract traded 3.4% higher at nearly 68 cents, after traders saw futures as being oversold.

The Chinese yuan sank below 7 per dollar and hit a record low in offshore trading Monday, with local officials blaming the depreciation on President Trump’s decision last week to extend tariffs to almost all Chinese imports.

Separately, Bloomberg News reported that China has ordered state agricultural buyers to cease purchases of U.S. exports.

That soured expectations of hog traders who had wagered that an outbreak of African swine fever would continue to decimate China’s pig population, causing the world’s biggest pork consumer to rely on U.S. exports. Hog prices had rallied in the first half of the year on such bets.

“We on the pork side thought that we would be immune to these kind of issues,” said Rich Nelson, chief strategist with agricultural trading firm Allendale Inc., referring to the U.S.-China trade tensions.

The yuan’s depreciation follows Mr. Trump’s decision last week to impose new 10% tariffs on $300 billion of Chinese goods starting Sept. 1. The announcement followed trade talks held in Shanghai last Monday, which concluded with little progress on a resolution between the two nations.

“The U.S.-China trade relationship overall is probably at the worst it’s been since early on in the negotiations,” said Mike Zuzolo, president of Global Commodity Analytics & Consulting LLC.

Export sales figures reported by the U.S. Department of Agriculture last week showed that China canceled 14,700 metric tons of previously agreed-to U.S. pork purchases on the week of July 19—before the Shanghai meeting even took place.

Many livestock traders are maintaining some level of optimism, convinced that U.S. pork simply can’t be ignored in a world battling swine fever. African swine fever is highly contagious among pigs, though the disease isn’t dangerous to humans, scientists say.

“Even if the Chinese try not to buy pork from the U.S., they are going to have to get it from Brazil or the E.U.” said independent trader Dan Norcini. “That means they could empty Brazil or the E.U. of all their hogs, forcing the customers of those countries to come here to the U.S. to secure supplies.”

Combined, the E.U. and Brazil are projected to produce nearly 28 million metric tons of pork this year, according to USDA data, while the U.S. is projected to produce 12.6 million tons.

Meat companies such as

Tyson Foods
Inc.

and

Pilgrim’s Pride

have seen their stocks soar this year on the back of African swine fever concerns, with Tyson shares up 59% and Pilgrim’s Pride up 85%.

Tyson predicts that pork prices will rise again in the latter part of this year in reaction to the devastation of African swine fever. “Given the magnitude of the losses in China’s hog and pork supplies, the impending impact on global protein supply and demand fundamentals is likely to be a multi-year event,” the company said in a statement Monday.

Write to Kirk Maltais at Kirk.Maltais@wsj.com

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