Proposed Chinese tariffs impact uncertain on Arkansas agri industry

The Chinese government announced Wednesday (April 4) plans to institute a 25% tariff on $50 billion worth of U.S. imports, including several agri commodities produced in Arkansas. It’s another move in what is perceived as an escalating trade war between the two countries.

A timetable for the implementation of this latest round of tariffs is not known, and with so much uncertainty it’s hard to gauge what the impacts will be to soybean, cotton, and pork producers, Arkansas Agriculture Secretary Wes Ward told Talk Business & Politics.

Arkansas farmers are projected to grow 3.6 million soybean acres in 2018, Ward said. China imports about $14 billion in soybeans, and is the second largest export market for the U.S. Ward said he isn’t concerned about international trade wars touted by President Donald Trump, but state officials are keeping a keen eye as events unfold.

“It’s something we’re watching,” Ward said. “Lots of things can happen between now and harvest time.”

Despite the potential threat to agri, the largest economic sector in Arkansas, U.S. Rep. Rick Crawford, R-Jonesboro, has spoken in favor of Trump’s tariff policy. Arkansas’ 1st Congressional District, which Crawford represents, is one of the most active soybean and other row crop producers in the nation. The other five members of Arkansas’ Congressional delegation have urged President Trump to negotiate better trade deals without the threat of tariffs.

Springdale-based Tyson Foods could also face export problems if the tariffs are put in place. The global meat producer and distributor had $145.65 million in pork export sales to China and Hong Kong in the most recent fiscal year, or 15% of the company’s $971 million pork export business. In total, China and Hong Kong accounted for 21% of Tyson’s protein – chicken, beef and pork – exports sales of $4.5 billion last year.

MARKET VOLATILITY
Soybean markets were volatile Wednesday after the tariff news broke. Soybeans began the day trading at $10.41 per bushel, but fell as low as $9.83 per bushel during the day before ending at $10.19, Arkansas Farm Bureau economist Matt King told Talk Business & Politics. It’s been at least five years since prices have fluctuated like that. If it dropped by 60-cents or more the futures markets would have shutdown, he said. These uncertain conditions could drive prices down, and prices had crested above $10 per bushel for the first time in a longtime, the economist added.

“This is going to continue to be a huge weight on this market,” King said. “ … One out of every three soybean rows grown in the U.S. ends up in China.”

Nearly all soybeans grown in 2017 have been sold, so if the tariff is immediately implemented it will only have a minimal impact on Arkansas soybean producers, King said. If implementation occurs closer to the 2018 harvest it could have a dramatic impact on exports, he said. The U.S. exported 4.39 billion bushels of soybeans to China in 2017, about 30% of all soybean exports.

Exactly how many bushels are exported from Arkansas to China isn’t clear, but it’s almost certainly higher than the average of 30%, King said. In 2016, the Natural State production was valued at $1.6 billion, with $863.8 million exported, and another $154.6 billion exported as soybean meal. Arkansas soybeans have higher protein content than those grown in some parts of the Midwest, meaning they are more desired by the Chinese, he said. Irrigation practices and growing conditions in the state lead to the higher protein beans. The Chinese use soybeans to feed livestock.

COMPETING EXPORTERS
Three countries – the U.S., Brazil, and Argentina – control almost 90% of the global soybean market. Brazil controls 46.8% of the market, followed by the U.S. with 37.3%, and Argentina with 4.5%, King said. A drought in Argentina caused soybean prices to rise during the last month, but Brazil reportedly harvested a record crop, he said.

The U.S. dominates the export markets in fall and early winter, while the South American countries seize control of the market in mid-winter and early spring when they harvest. Any loss of the Chinese market could open the door for Brazil, King said. There are no other countries in the world that can replace that export market, so finding replacements would be difficult, he said.

Cotton, another major Arkansas crop, may also get caught up in tariff politics. In 2017, the U.S. produced 21 million bales of cotton, and exported 14.8 million of those bales, according to the United States Department of Agriculture. China imported $947 million worth of U.S. cotton that same year. Cotton exports from the U.S. to China have been as high as $2.3 billion in 2013, King said. Arkansas farmers grew 438,000 cotton acres last year.

It’s not known if this volatility will compel some Arkansas farmers to grow less soybeans, Ward said. Most farmers have already bought seeds and formulated how they will plant their fields. His office has received a number of inquiries about what the impacts could be, but nothing has happened, yet, he said.

“Farmers tend to be optimistic. … I’m going to be optimistic,” Ward said.

Talk Business & Politics Senior Reporter Kim Souza contributed to this report.