Unsurprised by Tariff Action, Farmers Urge Quick Resolution

Source: By Katie Dehlinger, Progressive Farmer • Posted: Saturday, July 7, 2018

MOUNT JULIET, Tenn. (DTN) — Soybeans represent 41% of the value of U.S. products on China’s retaliatory tariff list, and for South Dakota farmer Brandon Wipf, the financial toll adds up fast.

“You’re probably looking at over $100 an acre in loss,” he told DTN. “We have to do some thinking about purchases that we were maybe going to make that might be delayed now because there will be a portion of our crop that we’re going to have to store, potentially for a while. It starts to become a big dollar figure really quickly.”

The U.S. imposed 25% tariffs on $34 billion worth of Chinese goods Friday as punishment for the country’s intellectual property theft and laws forcing technology transfer. Beijing responded with an equal amount of tariffs affecting more than 400 commodities, including soybeans, pork and poultry.

After months of buildup, Wipf said Friday’s news isn’t a surprise, but that doesn’t make it any more pleasant.

“If you’ve positioned yourself to be able to survive for a while without cash flow, great, but we know farm incomes are down 50% since 2013, and there’s a lot of people that aren’t in a position to do that,” he said. “I heard yesterday that farm loan rejections are up, and it could be the nail in the coffin for some individuals. Whether or not you’re personally affected by it, you certainly have to feel for those people.”

The value of U.S. soybean exports to China has grown 26-fold in 10 years, from $414 million in 1996 to $14 billion in 2017, according to the American Soybean Association. Futures prices have dropped more than $2 per bushel since talk of the tariffs began back in March.

Jim Sutter, CEO of the U.S. Soybean Export Council (USSEC), said there are real, long-term ramifications no matter how long the tariffs remain in place.

“Particularly from a reliability standpoint, to see this sort of thing happening puts a dent in our reliability armor,” he said. “I think what this does is opens the door for Brazil to continue their expansion plans.” It also gives China more reason to invest in Brazilian infrastructure to help make its transportation network more reliable.

Sutter said China’s tariffs apply to all shipments arriving in port after the tariffs were formally implemented, and he expects to see the number of cancellations rise.

“I think it’s yet to be seen whether they have to buy anything from the U.S. I’ve seen a lot of forecasts ranging anywhere from zero to 15 million metric tons perhaps of imports from the U.S. It’d be hard to imagine that they could go to zero, so I think it might be something, but it sure won’t be the same volume that we’ve seen the last few years, unless there’s some resolution to this problem.”

Sutter said there’s a long list of people who want to see a resolution to this situation, and he’s optimistic the U.S. and Chinese governments will find one, because the tariffs hurt both sides. U.S. soybean farmers will be paid a lower price for their crop, and Chinese hog producers will have to pay more for their feed, regardless of where they buy their soybeans.

As of Friday morning, Brazilian FOB soybean prices were 98 cents per bushel higher than prices in New Orleans.

“We’re continuing to do our work in China because we are optimistic this market’s not lost forever — that we will have an opportunity to be a supplier to that market again once this situation gets taken care of,” Sutter said. “Plus, we’re working very hard to let the rest of the world know that U.S. soy is on sale.”

He said lower prices are attracting business from a number of buyers that wouldn’t normally buy from the United States this time of year, like Egypt, Taiwan, Pakistan and a number of Southeast Asian nations. He said the USSEC is also working to build demand in markets that currently have very low meat consumption.

“We want to get into those places and really help them develop as China developed. That’s not going to happen overnight, but we think that by taking that step, and really focusing on that, it could be an important thing for long-term demand prospects for U.S. soy,” Sutter said.

While soybeans bear a large part of the value of China’s tariff burden, pork products are being hit with another burden. China already had a 12% tariff on pork products and added 25% on April 2 as retaliation for the U.S. steel and aluminum tariffs. Friday’s announcement adds another 25%, bringing the overall tariff rate to 62%.

A study by Iowa State University found producers lost about $18 per pig following the April tariff hike. On an annualized basis across the industry, that adds up to $2.2 billion, and National Pork Producers Council communications director Dave Warner said it’s too soon to know what affect Friday’s tariff will have.

Complicating matters is the U.S. pork industry was primed for expansion, with the U.S. expecting 8% production growth for this year and next year combined. With five new slaughter facilities under construction, packing capacity is set to increase 10%.

“All of this was done predicated on getting the TPP done and growing our exports,” he told DTN. “And of course these tariffs don’t grow it, they shrink it.”

Another issue to consider, he said, is it’s hard to find an alternative buyer for the types of pork products the U.S. sold to China, like variety and organ meats.

Warner said the pork industry recognizes what the administration is trying to accomplish with Friday’s tariffs and agrees that China needs to play by the rules. But now it’s time for USDA to explain the details of how it plans to help farmers dealing with the fallout of a trade war they didn’t create, he said.

“That would go a long way to easing the mind of these farmers,” Warner said. “They’re trying to be good patriots, as one of our producers said. We want to be a good patriot here and support the administration in its efforts to get all countries to play by the rules, to have free and fair trade, but he doesn’t want to end up being a dead patriot, meaning go out of business, because of the financial losses that would accumulate if this goes on too long.”

Wipf said the financial burden American farmers bear is a direct contradiction to what the president said on Twitter earlier this year; that trade wars are good and easy to win.

“When they’re saying things like that, it betrays a bit of blissful ignorance of the nuances of the global trade situation that farmers rely on,” he said, adding Trump sold himself as the deal-making president, and now is the time for him to deliver. He’s assembled a good team of negotiators, and they need to find a solution that doesn’t involve a long, drawn-out tariff fight.

While Wipf is disappointed to see the tariffs go into effect, work on the farm goes on. He plans to use his drone to check on his corn crop’s tasseling progress after rains helped it along.

His farm avoided the hailstorms that hit in other parts of the state, and he says both his corn and soybean crops have strong potential.

“With these prices, we’re going to need it. Every bushel,” he said.

Katie Dehlinger can be reached at Katie.dehlinger@dtn.com