A potentially damaging political game of “wait and see” could harm Kansas farmers as China and the United States take steps toward a trade war. But those same farmers, inured by years of unknowns from weather and markets, are used to dealing with uncertainty.
“Both countries are talking about tariffs, but at this point nobody’s imposed any,” said Rich Felts, president of the Kansas Farm Bureau. “We’re just kind of playing an ‘I dare you’ type of game, but the stakes are very, very high.”
China and the U.S. began butting heads on tariffs after President Donald Trump proposed a 25 percent tariff on steel and aluminum. China retaliated with a long list of U.S. products it would tack an equal tariff to, including corn, beef, pork and soybeans. Agricultural commodity markets jumped around Wednesday before leveling off late in the day, signaling the potentially significant impact on farmers if both countries forge ahead and don’t reach agreement at the negotiating table.
Felts referred to the back-and-forth as “sabre rattling” but said that if a soybean tariff went into place, it would be a “market mover.”
“The number of soybeans that we do export to China, it’s a market mover as far as that goes,” he said. “It just devastates our market. At least one in every third row of soybeans goes to China and abroad, why, that’s pretty significant. I think everybody’s kind of ‘wait and see,’ but they’re very concerned about where this could lead us. If you just look at the implications of watching the markets and how they responded (Wednesday) — very, very negative. As the day wore on, they weren’t quite as negative as they were to begin with. Still very, very negative implications.”
Across Kansas, farmers and ranchers are warily eyeing the potential chaos, holding onto the same wait-and-see attitude.
“Trade is a big deal for USA and Kansas farmers, in general,” said Lucas Heinen, a third-generation farmer in Brown County and president of the Kansas Soybean Association. “It just creates an environment of uncertainty, and people don’t like uncertainty.”
Soybeans are the U.S.′ leading agricultural export at about $24 billion last year, with the bulk of that going to China, said Brad Parker, Soybean Association spokesman. A little over half of the U.S. soybean crop is exported annually.
The soybean industry already was challenged when Trump withdrew from the Trans-Pacific Partnership agreement soon after taking office.
“We spent a lot of time lobbying for that in D.C.,” Heinen said. “That definitely hurts, because I think that market could have been good for us. He talked about bilateral negotiations. Nothing’s really happened there, but I imagine those things take a lot of time.”
Indications that the U.S. may pull out of the North American Free Trade Agreement also would be “huge,” he said. “Especially where I am in northeast Kansas, a lot of our crops get on a train in some form and go south to Mexico,” he said.
But like many in the ag industry, Heinen was adopting a measured response to the proposed China tariffs, although awakening Wednesday to see soybeans down 55 cents a bushel was a “real jolt.” Prices rallied late Wednesday and on Thursday.
“As time goes on and the initial reaction wears off, we just look and we watch,” he said.
Todd Domer, a rancher and spokesman for the Kansas Livestock Association, said his industry looks toward China more for its potential than concern about market losses. During the last six months of 2017, the U.S. exported about $31 million in beef to China. The market had just opened up in June 2017 for the first time in 13 years. It was exciting for ranchers to contemplate the potential there, with its rapidly growing middle class, he said.
“It actually showed some pretty steady growth from June through the most recent months,” he said. “Exports were $7.5 million during January, which was the biggest month that we’ve seen since that market opened. There has been some growth there, even though it hasn’t been a long period of time that it’s been open.”
Withdrawal from the TPP was a bigger hit because Japan is the largest market for U.S. beef, Domer said.
“We currently export (to Japan) about 13 percent of total U.S. production, which amounts to $286.38 for every animal harvested,” he said.
Much of the long-term impact of trade wars may depend on how long the market is closed. With China closed for 13 years, beef producers started from ground zero, Domer said. But if trade negotiations shut out ranchers temporarily and they have buyer contracts in a country, it may have a less negative effect in the short term.
“It’s really difficult to operate from a supply-and-demand standpoint when you don’t know which market is going to be open from day to day and month to month,” Domer said.