Farm country is worrying and waiting for the next shoe to drop in Trump administration trade disputes with leading ag export markets, including China, Canada, Mexico, and the European Union. “People are very concerned about the uncertainty of it [China],” said Sen. Chuck Grassley on Thursday during a break in town hall meetings in Iowa. Purdue University economists said their poll of producers found a “tremendous amount of uncertainty about future conditions.”
China vowed to match the United States by putting 25 percent tariffs on $34 billion worth of U.S. exports today. The White House targeted Chinese high-tech products as punishment for intellectual property theft. Beijing, now the No. 1 purchaser of U.S. farm exports, said it would put duties on U.S. soybeans, beef, cotton, corn, ethanol, dried distillers’ grains, grain sorghum, wheat, cranberries, orange juice, tobacco, and whiskey, along with industrial products.
Grassley, who has been holding town meetings this week, said that “one topic comes up every time”: the China dispute’s impact on agriculture. Farmers who hoped to break even on the combination of high yields and stable commodity prices now face substantial losses because of sharply lower market prices. “They are on the edge — really on the edge,” said Grassley, as a result of the administration’s determination to rebalance trade relations around the world. “You aren’t going to see Trump backing down.”
En route to a rally in Montana, Trump told reporters that he was committed to the tariffs: “34 [billion dollars], and then you have another 16 [billion dollars] in two weeks, and then as you know we have 200 billion in abeyance, and then after the 200 billion we have 300 billion in abeyance. Okay? So we have 50 plus 200 plus almost 300.” The tariffs held in abeyance would be imposed if China counters U.S. tariffs. “It’s only on China,” said Trump.
Since late May, soybean futures prices have plunged by more than $2 a bushel, losing one-fifth of their value, and corn futures have lost 15 percent of their value at the trend-setting Chicago Board of Trade. Wheat has fallen nearly as far as corn. While the prospect of a bumper fall harvest surely played a role in the lower prices, so did the threat of a trade war that would disrupt U.S. exports. Farmers earn 20 cents of each $1 in income from ag exports. Last year, $14 billion worth of U.S. soybeans were shipped to China, equal to one-third of the U.S. crop.
“They are a vital trading partner, and we need to continue to do business with China without the sting of tariffs,” said Iowa farmer John Heisdorffer, president of the American Soybean Association. On Tuesday, as part of a social media campaign, members of the farm group asked the White House to find an alternative to tariffs to resolve U.S. complaints about Chinese trade practices.
Purdue’s monthly poll of 400 producers indicated mounting concern for the near term, said economists James Mintert and Michael Langemeier. Farmer confidence, measured in the Ag Economy Barometer, rose slightly during June despite the decline in futures prices. But the uptick “masks the tremendous amount of uncertainty about future conditions that exists among U.S. producers,” wrote the economists.
When asked to predict financial conditions in the year ahead, fewer farmers knew what to say. “The biggest shift among respondents was away from answering ‘good times’ or ‘bad times’ to ‘neutral,’ suggesting what was really taking place was a rise in uncertainty about the outlook for U.S. agriculture,” wrote Mintert and Langemeier. There was a similar response when producers were asked if they expected commodity prices to be higher, lower, or unchanged over the next 12 months.
Dave Salmonsen, a trade specialist with the American Farm Bureau Federation, the largest U.S. farm group, said on a Farm Bureau podcast that many of the effects of Canadian, Mexican, and EU tariffs would take time to surface. Those tariffs were announced as a response to U.S. tariffs on imported steel and aluminum. China responded to the steel and aluminum tariffs by putting a 25 percent tariff on U.S. pork and 10 percent tariffs on U.S. ethanol, apples, and almonds.
“In the near term, for contracts, potentially they have to be executed already,” said Salmonsen. “It’s up to the importer to pay the tariff and see how much of it they can pass on in higher prices to their consumers. In a little longer term, you would think that if we’re not price-competitive in those markets, the buyers will try to find product elsewhere if they can. Those export markets will dry up.”
Brazilian soybeans fetched a huge premium — a 14-year high — over U.S. beans as traders tried to lock up supplies, reported AgriCensus, a market news agency. “Soybeans trading in the Paper Paranagua market for delivery in August have risen from around 100 cents per bushel over the August contract [in Chicago] at the start of June to being bid at 215 cents per bushel over futures on Wednesday.”
Agriculture Secretary Sonny Perdue has said he will decide around Labor Day whether to implement a plan to shield U.S. growers from unfair Chinese retaliation. During a visit to the Port of Vancouver in Washington State earlier this week, Perdue said that while the USDA package would help farmers, it would not help shippers or ports, reported The Columbian newspaper. “It’s painful in business, as well, and the people who serve the farmers and the people who handle those commodities and the people who ship these commodities — but it’s not really going to be possible from the USDA. … We’re statutorily confined to the producers of these commodities.”