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There’s no good time for tariffs’

By Staff | Jul 16, 2018



With the fear of tariffs being implemented now becoming reality, organizations are speaking out about the situation.

While many believed the marketplace would respond poorly to the tariffs, leaders have said the response hasn’t been as drastic as many feared.

Chad Hart, Iowa State University economist, said that the markets responded unfavorably to the idea of tariffs, but now that they are in place, the markets reactivity has actually subsided.

“The day the tariffs were implemented, soybean prices moved 35 to 40 cents higher. You’re sitting thinking, tariffs are bad so why did the market go up?” he said. “Remember, with ag markets we tend to sell the rumor and buy back the news. The market had already reacted to the tariffs and had been doing so for 1.5 months now.”

“Now that they’re in place, the soybean marketplace saw some people buying back in, but we’re still down close to $2 compared to our high from 1.5 months ago,” Hart continued. “Traders and market importers/exporters now know what the rules are and can work with them. No one likes a tariff, but now they’re here and we can work around them.”

Wesley Spurlock, a farmer from Texas and the chairman of the National Corn Growers Association (NCGA), emphasized that “there are no winners in a trade war, only casualties.”

The trade war with China also has short- and long-term implications for U.S. soybean producers.

Prices are already below the cost of production, the Iowa Soybean Association reported, with an approximate $2 per bushel decline since March. According to a Purdue University study, a 25 percent tariff imposed by China on U.S. soybean imports would result in a 65 percent decline in soybean exports to the country.

Total U.S. soy exports would drop by 37 percent while U.S. soybean production would decline by 15 percent.

Hart said Iowa producers likely are going to see the low prices that have been bid in during the past couple of months likely are here to stay for a while.

“We bounced, but not that much further up,” Hart said. “I have a feeling we’ll probably slide back down a bit. This also tells farmers that these tariffs will last until fall and they’re going to have a really rough time covering costs and making cash flows work.”

There’s no good time for tariffs, but Hart said they couldn’t have come at a worse time for some farmers.

He said farmers across the nation made a bold move by planting more soybeans than any other crop. Now there will be a sizable dent in the farm economy across soybean-producing states.

One thing that concerns Hart and producers in particular is that many growers are going to experience a double-whammy of sorts. With low prices for many commodities forecast coupled with the tariffs, the result is bleak.

According to Iowa State University economist Dermot Hayes, U.S. pork producers have lost $2.2 billion on an annual basis due to the events leading up to and following China’s 25 percent punitive tariffs in retaliation for U.S. tariffs on aluminum and steel.

Jim Heimerl, producer and president of the National Pork Producers Association, said hog futures dropped $18 per animal since March 1 when tariff talks began.

“While not all of this lost value can be attributed to trade friction with China, it is certainly the main factor,” Heimerl said in a statement.

Hart added herd expansion numbers, to be released in the next hogs and pigs report from the U.S. Department of Agriculture, will review farmers’ outlook on the situation. By next year, five new pork processing plants have opened or will soon open, increasing U.S. pork production capacity by approximately 10 percent from 2015 levels.

“We’re going to watch that the next couple of months,” he said. “In the last hogs and pigs report out, we saw the numbers up but not nearly as strong as we thought they would be as of two or three months ago. We definitely have seen the pace of expansion slow.”

What’s even more disheartening is that producers cannot turn to the United States’ other big trading partners because they, too, are having trade issues, Hart said.

“We came into 2018 with this looking to be the rebound year with positive markets,” he said. “We were seeing a good start to the year with prices and trade was going really well for most sectors of the ag economy and that’s all dissipated.”

“It would be easier to handle if it was just one country, but it’s China, it’s Mexico, it’s India, it’s Japan, it’s the E.U., and the list goes on,” Hart continued. “You only want to be fighting with one country, because that way, you can still trade with countries B, C and D, but now we’re fighting with countries A, B, C and D.”

Kent Bacus, director of international trade and market access for the National Cattlemen’s Beef Association, said that while the organization and beef industry believes in trade enforcement, “endless retaliation is not a good path forward for either side.”

Hart reiterated that producers should not panic right now, because “time is on our side.”

“Producers should ride it out and hopefully will see better prices when we get to fall,” Hart said. “Don’t do anything rash. The ones most worried are the ones holding onto old crop still. We have a lot of beans left over from last year. New crop sales are fine, but I don’t want the farmers with old crop getting into panic sales especially as we head into late July/early August.”

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