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Farm Income Will Surge 4% if China Ends Soy Tariffs, Say Analysts
If China eliminated its punishing trade war tariffs on U.S. soybeans, net farm income would climb by nearly $3 billion this year and $4 billion in 2020, said three university economists in examining one aspect of the Sino-U.S. trade war. The two countries will meet next week in Shanghai for their first face-to-face negotiations since trade talks broke down in May, said the White House on Wednesday.
The Trump administration was expected to announce between $4 billion and $7 billion in trade war payments to farmers and ranchers by the end of this week. Agriculture Secretary Sonny Perdue said growers would receive a minimum of $15 an acre for plantings of two dozen eligible crops. Some 277 million acres were planted to those crops.
A $3 billion increase is equal to 4% of U.S. net farm income, forecast at $69 billion this year. It would be a welcome boost, though still a comparatively small gain, said Pat Westhoff, director of the FAPRI think tank at the University of Missouri. The administration says it will spend up to $16 billion on Trump tariff payments on 2019 agricultural production.
Westhoff, FAPRI colleague Byung Min Soon, and Tracy Davids of the University of Pretoria developed a mathematical model to estimate the impact of Chinese tariffs on the global trade of soybeans, a widely used oilseed. A recent USDA report said the soybean market is unique in having a dominant buyer and two primary suppliers. China buys up to two thirds of soybeans on the world market. The U.S. and Brazil grow 85% of soybeans sold internationally. The Westhoff-Soon-Davids analysis was presented at the annual Agriculture and Applied Economists Association meeting this week in Atlanta.
Its estimates of the impact on prices — a 5% increase this year and a 9% increase in 2020 — was at the upper end of analyses presented on the subject at the professional society meeting, said Westhoff. U.S. soybean exports would grow by 3.8 million tonnes overall, with exports to China doubling to the pretrade war level of 36 million tonnes, according to the Westhoff-Soon-Davids model. The upturn “might be a little less,” said Westhoff, because of the African swine fever epidemic, which has slashed China’s hog inventory. With fewer hogs, China has less need for soybeans for hog rations.
Treasury Secretary Steve Mnuchin and U.S. Trade Representative Robert Lighthizer will go to Shanghai to meet Vice Premier Liu He and other senior Chinese officials for talks beginning on Tuesday “to improve the trade relationship between the United States and China,” said the White House. “The discussions will cover a range of issues, including intellectual property, forced technology transfer, nontariff barriers, agriculture, services, the trade deficit, and enforcement.”
U.S. farm exports are forecast by the USDA to drop by 4% in the fiscal year ending on September 30 due to low prices and the trade war. Exports generate 20¢ of each $1 in food and agricultural sales.
For the first time in a year, a private Chinese soybean processor, Yihai Kerry, owned by Wilmar International, purchased a cargo of U.S. soybeans, reported AgriCensus. Tit-for-tat tariffs put in place last July priced U.S. soybeans out of reach for privately owned crushers in China. AgriCensus, a market news agency, said state-owned companies also may have bought U.S. soy on Tuesday.
To see the slide presentation of “A Hybrid Approach to Estimating Impacts of China’s Tariffs on U.S. Soybeans,” click here.