Central Texas farmer Robert Fleming was hauling corn to the Sanderson Farms poultry plant in Palestine last week, and word that China was upping the ante in its tit-for-tat over tariffs had put him in a foul mood.
“I lost $10,000 overnight,” Fleming said. “The price of a bushel of corn dropped a good dime on the Chicago Board of Trade, and I have 100,000 bushels in storage. Prices may come back tomorrow, or they may drop again next week. Agriculture always takes the brunt in these trade wars.”
Most farmers and ranchers who spoke to the Tribune-Herald said they respect President Donald Trump’s efforts to hold China accountable. They said they understand his desire to slap levies on $50 billion in Chinese exports, a threat that rose by another $100 billion on Friday and was quickly met with China saying it would “counterattack with great strength” if that happens.
But those in agriculture do not want to lose their shirts in the process.
China’s revised list of U.S. products it has targeted for 25 percent tariffs includes soybeans, corn, sorghum, frozen beef, cotton and wheat. China has not set a date for enacting the levies, and some economic observers suggest the announcement is merely a negotiating ploy in this game of chicken.
The list also includes tobacco, whiskies, frozen orange juice, vehicles, an array of chemical products and aircraft.
The jousting started when Trump announced his plans to impose tariffs of 25 percent on steel and 10 percent on aluminum, much of it from China, to bolster the sagging domestic steel industry that has seen plant closings and massive job losses in America’s heartland.
“This certainly is not welcome. It’s another ‘bad’ on us,” said Rodney Schmalriede, who works about 2,000 acres in McLennan and Coryell counties, raising milo, corn, wheat, oats and soybeans. “I realize everybody has to sacrifice, that China definitely has the upper hand in trade dealings. I also know Trump is stubborn and wants his own way. I support his end goal, but American agriculture is in no position to be used as a pawn.”
Schmalriede said he sells product to Cargill, a multinational company with a poultry plant in Waco, and also ships corn to dairies around the state, grain sorghum to a mill south of Waco, and wheat to buyers in Fort Worth and Houston.
“I have no idea where some of it goes after I give up control,” he said. “But from what I understand, China is a huge buyer.”
Indeed, China uses a third of the soybeans produced in the United States, whose shipments last year were valued at $12.3 billion, according to the U.S. Department of Agriculture and the Waco-based Texas Farm Bureau.
China is the second-largest customer for U.S. exports of raw cotton, receiving 16 percent in 2017, behind only Vietnam and just ahead of Turkey, according to a list provided by the Texas Farm Bureau.
The Foreign Trade Division of the U.S. Census Bureau estimates that $1.1 billion of the $16.3 billion in Texas merchandise exports to China last year were agriculture related, Waco-based economist Ray Perryman said. U.S. agriculture exports remain significant, but their dollar value is declining, he said.
“This is not to say that China is not an important market for Texas agricultural products. A billion dollars to Texas farmers and ranchers is a lot of money,” Perryman said in an email response to questions. “But in the overall scope of the state’s exports to China, ag products are not a huge slice.”
The inclusion of beef on the list is significant but would primarily reduce potential, rather than shrinking an existing market, Perryman said. China lifted a ban on U.S. beef imports last year.
“Tariffs are never a good thing, harming both consumers and producers,” Perryman wrote. “Unfair trade practices are of course undesirable, but there are better and less disruptive ways of dealing with them than tariffs.”
Chinese tariffs on grain crops or cotton would create a “reshuffling,” but not necessarily devastate farmers over the long haul, said John R.C. Robinson, an agricultural economics professor at Texas A&M University.
“Competitors for the cotton of the quality produced in the United States are Australia and Brazil, so if our cotton becomes more expensive, we could see China turning to the Australians and Brazilians,” Robinson said. “We could see a drop-off in sales or a cancellation of contracts, which is not good.”
As markets adjust to tariffs, the United States likely would fill gaps created by other countries’ focus on meeting China’s needs, he said. Indonesia, for example, likely would gladly buy cotton from the U.S.
“As for soybeans, China can’t really source enough soybeans from other places. Argentina hardly has the supply to meet demand, so China will still face buying lots of soybeans from the U.S.,” Robinson said. “Tariffs would make things more expensive for their own importers. It would be the same with corn, as we are the largest exporter of corn in the world.”
Mike Cockrell, chief financial officer for poultry giant Sanderson Farms, which operates a facility in Waco, said his industry could benefit from tariffs imposed by China on soybeans and corn, which become feed for chickens.
“Soybean producers would have to find another home for their product, generally at a lower price,” Cockrell said. “There is a lot of rhetoric going back and forth now. Maybe cooler heads will prevail.”
Trade disruption of any duration with China could negatively impact U.S. farmers and ranchers who ship $135 billion in product worldwide annually, said Luis Ribera, a Texas A&M University AgriLife Extension Service economist, whose specialties include risk analysis.
“Thirty-five percent of farm income comes from exports, so any disruption could drive prices down if an alternative market is not found,” Ribera said. “Suppliers switch to something else or get out of the business.”
Ribera said he does not believe China and the United States have started a trade war.
“I think we have entered a period of discussion and retaliation that could take weeks or months to resolve,” he said. “Just because these items appear on a list does not mean tariffs are going to be implemented.”
Texas Department of Agriculture spokesman Mark Loeffler released a statement echoing Ribera.
“Commissioner Sid Miller believes these proposals and counterproposals are part of the new trade negotiations between the two countries and as such, have yet to be finalized,” Loeffler wrote. “In the end, he is confident these negotiations will result in a much stronger trade position for America and American agriculture.”