Will tariffs force expanding Iowa, U.S. pork industry to reverse gears and downsize?

Iowa and U.S. pork producers are seeing "blood on the floor," thanks to punishing new tariffs.

But industry leaders have stopped short of saying they would force the growing industry to downsize.

The outcome is especially important in Iowa, the nation's largest pork producer and home to two new pork processing plants.

Prestage Farms is building a $300 million pork processing plant near Eagle Grove, and Seaboard Triumph opened its $300 million pork plant in Sioux City in September.

With another $280 million pork processing plant in Michigan, the industry estimates it will have 10 percent more processing capacity next year than in 2015.

"There's blood on the floor, make no mistake about that," said Nick Giordano, a National Pork Producers Council vice president, at the World Pork Expo last week at the Iowa State Fairgrounds.

"We're being patient. We're being patriots. But ultimately, we got to be able to trade. We're an extremely competitive industry," said Giordano, who leads the council's global government affairs.

More: Iowa could support 45,700 livestock confinements, but should it?

China has levied a 25 percent tariff on pork, and Mexico says it will levy up to 20 percent on pork in retaliation to U.S. tariffs on steel, aluminum and other products.

Pork producers might see some relief, though. News reports Friday indicated Mexico might be able to continue importing U.S. pork duty-free through an import quota.

That's good news for an industry that's called itself the "tip of the spear" in the U.S.'s escalating trade wars.

The industry has estimated that U.S. pork producers could lose $2.2 billion this year through China and Mexico tariffs.

Dermot Hayes, an Iowa State University economist, said the industry likely would need to downsize if tariffs remained in place for months.

"What happens if we lose demand from our top three markets? We'd need to downsize," Hayes said.

Along with China and Mexico, Japan is likely to cut imports from the U.S. as a new trade deal with the European Union goes into place next year.

Older U.S. plants would likely be most vulnerable, Hayes said.

However, "none of the people I've spoken with believe these tariffs will remain in place," Hayes said.

"They're hearing all kinds of leaks" from the Trump administration that trade disputes will be resolved this summer, he said.

Pork producers expanded because exports markets were bright.

Jim Heimerl, president of the National Pork Producers Council, said he expanded his Ohio farm, believing the Trans-Pacific Partnership with 11 Asian countries would boost demand.

"Three years ago, when I built my last expansion farm, I thought trade looked great. I was excited," Heimerl said at the Pork Expo. "I think some of the packing plants looked for that, too. There was profit."

In addition to trade battles over steel, President Donald Trump pulled out of TPP last year, saying it was a bad deal. Then he suggested in April the U.S. would rejoin if the pact was improved.

The U.S. also is renegotiating the North America Free Trade Agreement with Canada and Mexico.

Ron Prestage, president of North Carolina-based Prestage Farms, is among those hoping new trade deals are hammered out this summer, reducing trade barriers for producers and meat packers.

Even with tariffs, Prestage said his family would make the same decision today to build the Iowa plant.

"Short-term, it's causing problems," Prestage said. "But long-term it will be good for my family. It will be good for pork producers in the Upper Midwest. And it's going to be good for our industry."

"We'd drive ourselves crazy if we changed our minds with every new political issue," said Prestage, whose family's company is a top-five U.S. hog and turkey producer.

The company has bigger worries than tariffs, he said.

"I worry more about our ability to attract and keep high-quality workers more than the impact of tariffs," said the veterinarian, adding that about 58,000 workers live within 30 miles of the plant.

Wright County's unemployment rate was 2.8 percent in April, equal the statewide rate.

The plant will process about 10,000 pigs daily, with 60 percent of the animals coming from Prestage farms.

The company will hire a couple hundred workers as the plant starts testing operations at year's end, but most of the employees will be hired early next year, Prestage said.

A second shift, with another 900 workers, likely wouldn't be considered for a couple of years, Prestage said.

"You're silly if you think you're going to hire that many people who are unemployed," Prestage said. "You're likely going to hire a significant number of people who are looking for a better job, that pays more money than they get currently."

Line workers likely will get $15-$17 an hour, plus benefits. 

"It's probably higher than some plants are paying," Prestage said. "But I'm not sure how much it would take … to have workers change jobs or locations."

David Herring, the pork council's president-elect, said he believes the capital investment the industry is making will be worthwhile.

"We're going through some tough times now," the North Carolina producer said. "But people want what we're producing … Things will get worked out."