President Donald Trump on Monday evening pledged to impose a 10-percent duty on $200 billion of Chinese goods. The new round of tariffs will be implemented on September 24 and will increase to 25-percent at the beginning of 2019. Jim McCormick, senior adviser with Allendale, says U.S. producers now need to focus on “what’s next.”
“When President Trump put $200 billion in play yesterday, he said, ‘If the Chinese hit us back, I’m going to go full boar and hit the final $257 billion in tariffs.’” McCormick said. “This means everything we import from China would have a tax on it, which means consumers would end up paying 10- to 25-percent more for any good coming from China, which is just not good for the economy. Then China is just going to ratchet it back.”
McCormick notes, “China is the biggest bean buyer in the world.” He discusses the importance of reaching an agreement, citing recent effects of the ongoing dispute.
“Beans are the primary focus of the tariff war,” McCormick said. “They’re pulling corn down a bit because corn and beans are going to trade in ratio. Now when you look at corn – we have a phenomenal crop, 180 bushel trend yield. Year-to-year carryout is projected to drop over 300 million bushels. We’re using this record crop, plain and simple. The argument is, we have to plant more corn acres to meet this demand. But if beans keep falling due to tariffs, it pulls the corn down and unfortunately corn doesn’t rally like it should to buy acres.”
McCormick adds the soy market is also pulling down pork prices. The African swine fever outbreak in China should be generating demand for United States pork products. However, tariffs are keeping China out of the U.S. market.
McCormick talks about additional effects, impacting farmers ahead of harvest.
“The basis is awful right now,” McCormick said. “The basis, down at the Gulf of Mexico, for beans is trading at a negative. We haven’t seen a negative basis at the Gulf of Mexico since 2008. It’s a problem with storage and holding onto grain.”
McCormick advises growers to hold onto as much grain as possible, until a trade deal brings the market back up. He recognizes commercial storage has become more expensive. If commercial storage is not “the best economic model,” McCormick suggests moving grain and using options to regain ownership.