Planting season is well under way across the US. And while farmers welcome news that the US and Chinese officials agreed to temporarily reduce tariffs placed on exports, plenty of uncertainty remains.
China is one of the top three importers of US food commodities, behind Canada and Mexico, and the escalating trade war between Washington and Beijing has worried farmers – particularly grain farmers, who lost money on last year’s harvest as bumper crops weighed on prices.
Even as farmers plant this year’s corn and soya bean crops, agricultural economists estimate grain farmers could lose money again as total production costs remain above current prices, unless something changes.
In a 90-day truce announced on 12 May, the US will cut the additional tariffs it placed on Chinese imports to 30%, down from 145%, while Chinese levies on US imports will drop to 10%. Over the next three months, the two countries will continue negotiations.
Soya bean farmers have much to gain – or lose – in Chinese trade talks. Last year 54% of US soya bean exports went to China, according to the American Soybean Association.
Soya beans were a casualty of Donald Trump’s trade war with China during his first term in 2016. Between 2000 to 2016, the US’s share of Chinese soya bean imports averaged around 40%, but by 2018 but it fell sharply as China turned to Brazil for its oilseed needs, said Lane Akre, economist at Farm Journal, a trade publication.
Although the US and China eventually formalized trade for a few years, the US’s market share of Chinese purchases never rebounded. Last year it was only 22%, Akre said.
Caleb Ragland, the soya bean association’s president and a soya bean producer in Kentucky, and Brian Duncan, president of Illinois Farm Bureau, who also runs a grain and livestock farm in north-west Illinois, both said they’re happy to see a truce, but the 90-day pause is not a long-term solution.
“We understand the importance of fair trade, but we’ve historically supported a rules-based approach to trade. We’re hopeful that the negotiations here can lead to a productive framework,” Duncan said.
Duncan said the investments farmers make in their operations, such as machinery, land, livestock and crops, are costs that often are paid for over years, costs that can’t be passed on. That makes trade uncertainty so difficult to manage.
“We’re price takers, not price makers. So it’s unnerving here, as we’re planting this crop, wondering what demand is going to be, and realizing that during the last round of trade disputes with China, it pushed them further into the arms of Brazil,” he said.
China is also an important export market for US pork, as 55% of pork offal products not readily consumed domestically, such as snouts and feet, go to China, in addition to muscle cuts, according to the National Pork Producers Council.
Karl Setzer, partner with Consus Ag Consulting, a grain merchandising consultant, said farmer sentiment surveys, such as those taken monthly by Purdue University, show farmers are optimistic and think tariffs will be beneficial in the long run. He said some of that optimism may reflect the fact that farmers received subsidies from the Trump administration during the last trade war. Setzer wasn’t sure the optimism on tariffs is warranted in the long run.
Despite the China rows, both Setzer and Akre said the US has other export markets to sell its grain and oilseeds but inking a deal with China matters.
What’s potentially concerning is that the truce will end in 90 days, just before farmers begin the fall harvest.
The truce comes at a lull in crop marketing, as much of last year’s harvest has been sold, and farmers haven’t forward-booked sales for the new crop that will be harvested in the fall. That makes it hard to tell the impact of the truce, said Setzer.
“We don’t know what it means for new crop yet. Demand doesn’t really start to increase until we get to June or July,” he said.
