It’s been six months since the Chinese government fired the retaliatory shot that signaled the beginning of the ongoing trade war between China and the U.S. It was the shot heard round the world — at least by world farmers.
China’s first retaliatory tariff on U.S. soybeans took effect July 6, 2018 — the same day a 25 percent U.S. tariff on $34 billion of Chinese goods was imposed. Threats of tariffs between the countries began in early 2018 with tariffs placed on U.S. fruit, nuts, pork and other goods, as well as the threat of a massive tariff on U.S. grain sorghum that was scrapped in May. Increased tariffs were discussed by both sides before any increases were suspended Dec. 1 while the U.S. and China entered a 90-day negotiation period.
But the tariffs and threats have created uncertainty for Kansas farmers in the market for soybeans, as well as disrupting corn and grain sorghum markets.
“What it has done is make the markets stagnant,” said Reno and Rice county farmer Jenny Burgess. “The potential is gone. It’s a big pill to swallow when you do sell, but we have to. We have bills to pay at the end of the day.”
Ending a drought
Burgess and her husband are first-generation farmers who got into the industry for their love of agriculture, but she said between market disruption and weather complications, the joy of farming was lost in 2018.
The trade war’s start is linked to one of President Donald Trump’s campaign promises. He promised to hold China accountable for unfair trade practices and theft of U.S. intellectual property, which he said had gone on unanswered for years.
After a year of short-term challenges, many farmers are beginning to worry about the long-term effects of a prolonged trade war.
“I look at it a little like a drought,” McPherson County farmer Adam Baldwin said. “Every drought is ended by rain at some point, but what will the cost be?”
The U.S. spent decades building export relationships and opening markets in China, especially for soybeans. According to Baldwin, those relationships, along with better infrastructure for moving grains and seed worldwide, has given the U.S. an edge over competitors like Brazil and Argentina.
“If China has a tariff on U.S. soybeans, the end user is less likely to buy from the U.S.,” Baldwin said. “So they go to Argentina or Brazil, who in turn plant more soybeans.”
If that model continues, over the years Argentina or Brazil may improve their infrastructure, or China may even invest in their infrastructural improvements. In the short term, farmers are hurting because of bad basis prices, but in the long term, Baldwin believes the U.S. could lose its competitive edge as a top soybean supplier worldwide.
Making decisions
Problems in the soybean market cause disruptions elsewhere. With uncertainty as to whether China will be importing more soybeans in 2019, farmers are challenged with deciding what to plant.
“I’d like to plant a good number of soybeans because it’s been a good market for me historically,” Baldwin said. “But I’m having to move acres to corn and milo, even though we already have a surplus of those.”
Baldwin said he’s trying to keep acres as flexible as possible.
In Kansas, soybeans are usually a good export crop. The world wants soy, and the U.S. has it. The same goes for grain sorghum, but with disrupted export markets, farmers are selling where they can or need to.
Baldwin was hauling corn to the ethanol plant Wednesday and said he hadn’t waited behind a truck one time to dump. The plant had two lanes open for grain sorghum, and one for corn.
“Last year it was almost all corn coming into the ethanol plant,” he said. “Now there are two lanes dumping milo, and the basis there is about 40 cents different between corn and milo.”
For the overall Kansas economy, the highest value for grain sorghum is through exports. Farmers get a premium for selling their sorghum overseas, especially to China where most of it went in 2017. The highest value for corn is usually found by selling to ethanol plants or feedyards to feed livestock.
“The way to maximize the money coming back into the Kansas economy would be to export milo at a premium and sell corn locally into feedyards or the ethanol plant where they are paying more for corn than milo,” Baldwin said.
With more grain sorghum flowing into ethanol plants, the local demand for corn is driven down and more depression is put on the markets.
Short-term pains
Even with all that, Baldwin did say the Market Facilitation Program, which aimed to dull the edge of trade war disruptions has helped ease the short term pains.
“MFP did take a lot of the pain out. Without it, there would have been some guys really hurting, and I’d say some are still probably really hurting,” Baldwin said. “But those are tax dollars out of people’s pockets. In the long term, it needs to get figured out.”
MFP also saw some challenges when the federal government shut down at the end of 2018. The lapse in federal funding led to the closure of the United States Department of Agriculture Farm Service Agency. With FSA closed down, farmers who had not yet applied for MFP assistance had no place to go.
The original deadline for MFP applications was Jan. 15, but Tuesday, USDA Secretary Sonny Perdue announced the deadline would be extended. The deadline will be extended equal to the number of days the FSA offices have been shut down. It closed at end of day Dec. 28, 2018.
Burgess said the shutdown has also thrown a wrench in finalizing conservation program paperwork and getting paid for their year of work within the program.
“Until I see the markets reflecting the movement of barges, then I will be able to see the light,” she said. “My only hope is that President Trump is working on something behind the scenes that we have yet to see.”
(Source – http://www.blackseagrain.net/novosti/six-months-after-u-s-china-trade-war-starts-farmers-look-at-future-problems)
