US Farmers Choke On Trade War With China

US Farmers Choke On Trade War With China:

In April we told you about how some of the “unintended consequences” of Trump’s steel tariffs, such as an Illinois farmer who put the brakes on a $71,000 grain mill, but had to hold off on the purchase because the seller raised the price 5% to account for the rising price of steel, or Iowa grain mill producer Sukup Manufacturing, which had to hike their prices for grain storage bins.

The Wall Street Journal now reports that the US-China “trade spat” is now affecting US exporters of soybeans, pork and other commodities.

Since early April, when China announced tariffs on some U.S. agricultural goods and threatened to target others, Chinese importers have canceled purchases of corn and cut orders for pork while dramatically reducing new soybean purchases, according to U.S. Department of Agriculture data. Chinese importers’ new orders of sorghum, a grain used in animal feed, have dwindled while cancellations increased.

The chill in agricultural trade is sending jitters through the U.S. Farm Belt, which for years has dispatched farmers on trade missions to cultivate the Chinese market. –WSJ

As the summer persists and if nothing’s been resolved, it will start showing up as a pretty big hole in U.S. exports,” warned Soren Schroder, CEO of Bunge Ltd., one of the world’s largest soybean processors and traders.

Last Thursday, a ship bound for China carrying over 58,000 tons of American sorghum was diverted to South Korea after Beijing said it would levy a hefty deposit on U.S. shipments of the grain amid an anti-dumping probe.

Importers now facing losses of millions of dollars on their cargoes are trying to resell the grain to buyers elsewhere but are being forced to offer steep discounts.

Four cargoes have been resold to Saudi Arabia and Japan, and another is heading to Spain. If the ‘Peak Pegasus’ unloads in South Korea, it would be first of the Chinese cargoes to be resold in that country. –Reuters

No date has been set in stone for the various tariffs China has threatened to impose, however senior US officials including Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer are meeting with Chinese officials in Beijing this week for negotiations. That said, even if they reach an agreement, the uncertainty created by the threatened tariffs has already done quite a lot of damage in the commodities sector.

China spent around $20 billion annually on US agricultural products in 2017 – and their growing apetite for pork and other meats requires huge quantities of feed grain, such as the aforementioned diverted sorghum. China-based importers are holding off on new soybean orders from the US, including their usual advance purchase of this fall’s crops, as nobody wants to take the risk that a shipment will be slapped with a giant tariff by the time it is delivered. As such, China is buying more beans from South American suppliers, according to Bunge’s Schroder.

Chinese buyers ordered about 255,000 metric tons of U.S. soybeans during the week ended April 5, according to the USDA, but new sales over the rest of the month came to about 11,000 metric tons, a sharp decline. Meanwhile, purchasers canceled nearly 76,000 metric tons’ worth of orders over the month. –WSJ

If [the Chinese] market closes, it could be devastating for local communities across the Midwest,” said Senator Chuck Grassley (R-IA) in a statement.

Despite the fact that US soybeans are around $15 a ton cheaper than beans from Brazil, a 25% tariff would cost Chinese importers around $100 a ton according to St. Louis-based trader Ken Morrison.

Ed Breen, chief executive of crop-seed supplier DowDuPont Inc., said Thursday that if China steps back from U.S. soybean purchases, growing markets like Mexico, Indonesia, Vietnam and Turkey would fill the void. –WSJ

Following China’s tariff on US pork products on April 2, the USDA reported the largest weekly drop in net pork sales to the country since October 2016, and sales have declined further since then.

Given expanding pork supplies—boneless hams in cold storage hit a record 86 million pounds earlier this year—and another big slaughterhouse set to open later this year, the industry has been aiming to sell more to China, not less. –WSJ

“With the trade negotiations, a lot of unknowns with our future demand is clearly not a positive to the pork market at this stage,” said Jason Roose, VP of U.S. Commodities Inc., a livestock and grain advisory firm based in Des Moines, Iowa.

Given China’s growing need for agricultural imports, some believe that China won’t be able to avoid US crops for long. That said, the biggest danger in this trade war is US farmers and agricultural companies developing a reputation for unreliability – prompting other countries to maximize their own crop production, according to research firm AgResource Co’s President, Dan Basse.

“Our biggest concern is the message this sends to the world,” said Mr. Basse, adding that “Brazil still has an abundance of land to bring into production, and farm profits there would rise to the chagrin of the U.S. farmer.”

Trump might be wise to note that the very US farmers suffering the unintended consequences of the trade spat with China are the very same folks from he promised not to neglect.

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