Discover the latest updates in the U.S.-Chinese trade dispute
And learn how to best plan for the uncertain future of the American farm economy.
Farmers across America are hard at work in their fields, but as the trade battle between the U.S. and China continues, it’s uncertain whether or not the Chinese will be purchasing our goods come harvest time.
Agricultural Trade May Be Impacted by U.S., Chinese Trade War
President Trump, who says he wants to protect U.S. businesses and intellectual property, called for tariffs of 25 percent on steel imports and 10 percent on aluminum in March 2018. These tariffs would impact approximately $60 billion worth of Chinese-made goods. As a result, the Chinese retaliated, threatening to impose an additional 15-20 percent tariff on 128 U.S. imported products, including fresh fruits, dried fruits, nuts, pork, wine, and ginseng.
In response to China’s proposed tariffs, President Trump proposed further tariffs on Chinese imports – an additional $50 billion of Chinese goods – which prompted the Chinese to propose an additional 25 percent tariff on soybeans, whiskey, and other U.S. products. Additionally, in late April 2018, China announced it would issue preliminary tariffs of 178.6 percent on U.S. shipments of sorghum. This move would effectively close America’s largest export market for grain sorghum, at least temporarily.
The two countries are negotiating, and trade talks are ongoing, but they may seem to be lacking any breakthroughs. The U.S. is demanding that China reduce an existing $375 billion trade deficit by $200 billion, stop state funding to Chinese companies that compete internationally, and stop Chinese companies from taking intellectual property from U.S. companies as a prerequisite for doing business. The U.S. has promised to impose the additional tariffs by July 15, 2018, if no deal can be reached.
China, on the other hand, has reportedly promised to buy almost $70 billion in agricultural and energy products, including soybeans, corn, natural gas, crude oil, and coal, if President Trump does not impose the tariffs.
Best Approaches for U.S. Farmers Who Depend on Agricultural Trade
Recently we explored options for American agriculture to consider given the current trade environment in an article with Growing America.
In response to the uncertain trade climate and the unclear future of ag exports, experts recommend that farmers avoid supply management – also known as not raising more than what can be consumed. According to Jim Mintert, professor of agricultural economics and director, Center for Commercial Agriculture at Purdue University, that’s a recipe for a shrinking industry over time.
Additionally, Mintert suggests farmers think twice before shifting to other crops as a way to outrun the situation. He warns that the demand for those “other” crops tends to be pretty inelastic. In other words, you don’t need a very big supply shift to get a big reduction in price.
“It’s unrealistic to think that you can take a significant acreage away from dominant crops like corn and soybeans that, combined, account for approximately 180 million acres and shift that acreage over to other crops without causing a big enough increase in supply to see prices in those other commodities drop significantly,” he says.
Finally, Mintert encourages American farmers to have a pricing strategy. For example, if you’re making cash sales now but still want to benefit in case prices rally this summer, a strategy Mintert says you could consider is the purchase of out of the money call options to cover the cash market sales.
In good times and tough times, AgAmerica Lending is here to support America’s farmers and ranchers – those who rise each and every day to agriculture’s challenges and keep rural America alive and well. It’s our mission to see to it that U.S. agriculture thrives in every way, and we do our part by offering unique and customized financial structures to support our farmers’ dreams and to help them succeed.
For those looking to secure a loan using an agricultural parcel of land as collateral, AgAmerica can provide expertise, support and a range of loan products. Our land loan experts can be contacted at 855.214.0328, or visit AgAmerica.com/get-a-loan to schedule a free consultation. Get inspired – read some of our recent farm loan success stories.