Chinese Trade Dispute - Additional Tariffs Impact U.S. Agriculture Industry
May 29, 2019
China announced more than $60 billion of retaliatory tariffs on May 13th that includes a long list of foods produced in the United States, industry experts say the impact on U.S. agriculture is difficult to predict because many of the most damaging agricultural tariffs are already in place.
The remaining foods now caught up in the latest round of tariff escalation, to go into effect June 1, are exported to China to a somewhat smaller degree. “On the beef side, it’s mostly a loss of potential business in the future,” said Joe Schuele, a spokesman for the U.S. Meat Export Council. “For beef, China is a market in its infancy.”
Independent cattle producers are now at the will of an unpredictable cash cattle market with the unraveling of the U.S. and China trade talks. An important by-law in the Kansas Cattlemen’s Association framework supports keeping trade quotas and tariffs in negotiations of the trade talks, so the cattle industry is fairly represented. KCA further supports disease prevention protocols that are equal to or above USDA standards, KCA resolves these protocols should be enforced and incorporated into fair trade negotiations. It will be integral for trade talks to resume on a level-playing field soon or independent producers in the Midwest will be the hardest hit among the beef industry.
While market speculators believe it seems unlikely these new tariffs will cripple any one commodity, what they have done is prolong the trade dispute. This could ruin those hard-hit commodities that have already endured nearly a year of depressed prices. With live cattle prices and futures taking another nosedive this week in response to the new Chinese retaliatory tariffs, President Trump assured American producers and farmers he would replace lost income from falling prices. “The hope China would continue to buy our great farm products, but if not, your Country will make up the difference.” It is unexplained exactly how this will happen and how beef producers would benefit from federal assistance.
Futures prices for feeder cattle have taken a big hit in the last few weeks, closing the wide gap between futures contracts and cash prices. As the news of the new tariffs from China hit on Monday, May 13th, cattle futures were barely able to stay positive in all trading months, let alone the dip in forward cattle contracts, with the only volume of activity in November off the December board at $1 basis. If the expected decline in cash prices for live cattle continues, producers will ultimately be reliant on the consumer based on price alone. The choice/select spread remains wide seasonally and is expected to continue into the summer currently sitting at $13. Retailers seem ready to take on more inventory at the current price level with box prices now a full $10 under what they were this time last year.
The futures market might have been overpriced, with traders now realizing there are still a lot of cattle in the country amid independent producers not yet on feed. The number of cattle in feedlots is also a factor. With markets recognizing prices were at the top end in early May, they are now coming back closer to supply and demand. Trade uncertainty, tariffs and the inability to get an agreement with China have added fuel to the fire. The steep grain slump rippled across agricultural commodities markets, with prices for cattle and hogs, which normally benefit from cheap fee prices, also dropping.
When the U.S. withdrew from the TPP (Trans-Pacific Partnership) in early 2017, many assumed the agreement was dead. But the remaining signatories, led by Japanese Prime Minister Shinzo Abe, quickly agreed on a replacement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which retains around 200 of the TPP’s 220-odd provisions. The 20 that were left out were those for which the U.S. pushed can be reinstated should the country wish to join the pact at a later date.
Now that the CPTPP has entered into force, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam enjoy preferential access to each other’s markets. As tariffs are phased out, U.S. suppliers in those markets are finding themselves at a growing disadvantage. While the Japanese tariff on American beef imports has remained at 38.5%, the levy on beef from fellow CPTPP countries has fallen to 27.5% and eventually will reach just 9%. As a result, American beef (and wheat) entering Japan (or any other CPTPP country) now face a higher tariff than beef and wheat from Australia, Canada, or New Zealand.
USDA will take several actions to assist farmers in response to trade damage from unjustified retaliation and trade disruption. President Trump directed Secretary Perdue to craft a relief strategy to support American agricultural producers while the Administration continues to work on free, fair, and reciprocal trade deals to open more markets in the long run to help American farmers compete globally. Specifically, the President has authorized USDA to provide up to $16 billion in programs, which is in line with the estimated impacts of unjustified retaliatory tariffs on U.S. agricultural goods and other trade disruptions. These programs will assist agricultural producers while President Trump works to address long-standing market access barriers.
Kansas Cattlemen’s Association Votes on Policy and New Board Members
December 23, 2014
There are a number of ag organizations out there today, but when it comes to setting policy, the Kansas Cattlemen’s Association (KCA) sets itself apar...
KCA Membership Speaks Out About Beef Checkoff
January 21, 2015
When we congregate to pray, our prayers in unison exalt a volume much greater than any prayer spoken alone. When cattlemen contribute a simple dollar...