Agriculture commodities caught in China-U.S. tit-for-tat tariff threats

When you feel that you have nothing to lose, you are at your most dangerous.

With China proposing steep tariffs on U.S. pork, soybeans, cotton, tobacco, frozen orange juice, and corn, the market is trying to determine the probability this all comes to fruition as the bluster heats up.

The debate over the importance of trade deficits rages on, but the real concern for farmers in North America is what impact this will have on prices at the farm gate in 2018.

From a Canadian perspective, there are mixed reviews on what the tariff threats could mean for exports to China.

Rick Bergmann, chair of the Canadian Pork Council says, “the impact is disruption, if in fact this impacts U.S. trade to China. U.S. pork has to go somewhere. Canadians exporters will have to compete with the U.S. in other markets, even if they gain share in China.”

READ: China: A great opportunity for Canadian agriculture

This is consistent with some of the commentary I have heard regarding the soybean trade if the tariffs are implemented. If China buys fewer U.S. soybeans, Canada and more-so Brazil could fill some of that supply. But those U.S. soybeans will have to find alternative markets if there is a trade deterrent with China and that may create more competition in other markets.

One of the only commodities that was in the green today was canola. Could a tariff on U.S. soybeans be an opportunity for canola oil and meal as a substitute?

Chuck Penner of LeftField Commodities isn’t so sure Canadian canola is an instant winner: “I don’t know that we’d see much more support for canola oil, as the main fallout of the soybean issue is on the meal side. So it’s possible we could see a little more meal interest. Most of the canola meal coming out of her crush plants is already committed to U.S. buyers, so there’s not a whole lot of extra capacity floating around. To me, the biggest opportunity (if the proposed tariff actually becomes reality) would be stronger Chinese interest in Canadian soybeans. ”

In the NAFTA talks, Canada, the U.S., and Mexico have pushed the concept that our agriculture value chains are integrated and connected at the hip. If the U.S. agriculture economy has issues in trade with China it is hard to imagine that Canada would not be negatively impacted.  As one Canadian trade expert described it to me, “there would be collateral damage.”

One of the positives is that there is time between now and the first U.S. tariff implementation under section 301, which gives China and the U.S. time to let cooler heads prevail.

In many ways U.S. and Canadian agriculture are banking on it.

 

Shaun Haney

Shaun Haney is the founder of RealAgriculture.com. He creates content regularly and hosts RealAg Radio on Rural Radio 147 every weekday at 4PM est. @shaunhaney

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