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U.S.-China trade truce meets 'cautious optimism' for many in Montana

 

December 5, 2018

Havre Daily News/Ryan Berry

Free range cattle wander along Montana Secondary Highway 234, Beaver Creek Highway, Tuesday south of Havre. A trade truce and trade negotiations between the U.S. and China are raising cautious optimism in economists and agricultural producers who say the ag industry has been hurt by the trade tariffs imposed in the last year.

The trade truce between the United States and China is being looked at by experts and producers alike with cautious optimism.

"There is still quite a bit of uncertainty whether this is going to happen or not, but certainly, at least there is some optimism," said Associate Professor of Economics Anton Bekkerman of the Department of Agricultural Economics and Economics at Montana State University Bozeman. "At least one side of that conversation is saying that there is going to be some progress, but the timing and the extent of that progress is still very much in question. There really has not been any confirmation from the buyers, China, that this is actually going to happen."

Tariffs put in place by President Donald Trump, with more scheduled to start next year, created concerns on the impact on Montana agriculture both in crops and in livestock, including deals in the works for China to import millions in Montana beef.

Last week President Trump and his administration met with Chinese President Xi Jinping during the G20 Summit in Argentina to discuss the trade disputes between the two countries.

The Trump administration announced shortly after the conversation that the U.S. will be delaying additional implementation of tariffs.

Bekkerman said that this will not be removing any tariffs but delay increasing U.S.-Chinese tariffs for 90 days.

Bear Paw Development Corp. Executive Director Paul Tuss said he thinks the news of the truce will be welcome by agricultural producers.

"Time will tell, but anytime when you have something as serious as an international trade war, you always hope that cooler heads will prevail, and taking a couple of steps back from the brink of very serious economic repercussions globally is a good move in the right direction," Tuss said.

Clearing up a cloud of uncertainty

The tariffs were suppose to increase from 10 percent to 25 percent on more than $200 billion worth of exports Jan. 1, Bekkerman said. He added that in return for delaying the tariff increase, China agreed to import more agricultural goods from the U.S.

"That's good news," he said.

He said that what he has seen in the agricultural market is a jump in the price of soybeans. This is a sign that the markets are responding positively after many months of high uncertainty, Bekkerman said.

Tuss said certainty in the agricultural market is helpful. He added that Montana has some of the most productive agricultural producers in the world, but with a cloud of uncertainty it is difficult to operate efficiently.

"Anytime, from an economic perspective, that we can break down barriers to trade it's generally good," Tuss said.

He said the tariff war has created uneasiness about the economic growth of the nation's economy as well as the economy of agriculturally based areas.

"In general, I think, it is a very positive step that we have reached a point where the tariffs are going to be, if not eliminated, at least smaller than originally announced," Tuss added.

U.S. Sen. Jon Tester, D-Mont., who is a wheat farmer from west of Big Sandy himself, said this morning that a long-term solution needs to be found.

"This trade war is a government-made disaster for our economy and our state's number one industry," Tester said in an email to the Havre Daily News. "China must be held accountable, but there are better ways to do that than taxing American farmers and ranchers. It is time to find a permanent solution that gives Montana producers the certainty they need to maintain a successful operation."

Tester has vehemently called for an end to the president's trade war that is hurting the bottom lines of Montana farmers and ranchers, the email said, adding that a trade truce is a step in the right direction, but producers need long-term certainty that tariffs won't cause them to lose access to international markets.

U.S. Rep. Greg Gianforte, R-Mont., also called the truce a good start.

"The fact is, no one wins with a trade war and stepping back from a trade war with China is a promising step," Gianforte said in an email to the Havre Daily this morning. "I'll continue urging the administration to wrap up negotiations quickly and announce trade deals that benefit Montana ag producers, manufacturers and consumers."

The office of U.S. Sen. Steve Daines, R-Mont., had not by print deadline this morning responded to an email requesting comment sent Tuesday by the Havre Daily.

Bekkerman said what is concerning so far about Trump's announcement is that China has not produced any statements so far confirming the details of this deal.

"Yes, it is a positive sign, but with a lot of cautious optimism," he said. "We just don't know."

Hope rather than certain predictions

University of Montana Bureau of Business and Economic Research Director Emeritus Paul Polzin said that, without knowing more specifics, it is difficult to tell what will happen as a result of the trade truce. If part of the agreement with China is that it will revert to importing a substantial portion of the U.S. soybean crops then that will sustain the U.S. soybean market.

He added that the prices of soybean will probably not return to the level at the beginning of this year at $10 a bushel, but any increase will help stabilize producers.

Even if, instead of importing a quarter of the U.S. crop as it did previously, Polzin said, China agreed to import an eighth of the crop, that would push prices up for soybean as well as reduce soybean stockpiles.

He added that if the soybean market begins doing well, a modest spillover to the price of corn and wheat could follow.

Bekkerman said if soybean product prices climb and China increases its imports, all agricultural markets are likely to be propped up on those price increases, but to what extent it is really hard to say.

It could potentially signal to other Asian countries that if China is open to negotiating maybe they should be optimistic in their own negotiations, he added, including countries like Japan. That would have very positive effects for Montana producers.

But what is happening is unknown.

"We don't know if there are any agreements about wheats at this point," Polzin said.

"Speculating, it will be likely the focus is soybeans," he added.

He said a part of the agreement may include China importing pork, the prices of which also have suffered due to counter-tariffs enacted by the European Union on U.S. agricultural products. China increasing imports could offset that, he said.

But, he added, nothing is guaranteed.

"It's very difficult to predict what will happen in the next few months with China-U.S. relations," Polzin said. "But at least this is a sign that things are not likely to get more difficult with U.S.-China trade relations within the next 60 to 90 days."

He added that many observers are hopeful that this represents a shift away from using tariffs like a weapon of commercial trade and a reversion to more "normal" ways of negotiating trade relations.

"It's hope rather than surety of a prediction," Polzin said.

"Some commentators have referred to this outcome as stepping back from the brink, and maybe that's right," Polzin added. "But stepping back from the brink so that you're not actually on the cliff edge doesn't mean to say that you haven't moved far enough away not to fall over. This is a hundred-foot move away, not a hundred-yard."

Effects on Montana producers

Kremlin-area farmer Ryan McCormick said he believes it is positive anytime the country can get soybeans into China.

He said that even though soybeans are not primarily grown in Montana, "it is positive for all commodities," adding that when one product goes down, it drags other prices down and when one product does well the effects can be felt throughout the market.

McCormick said the truce is a positive sign of increasing trade in foreign markets. He added that everyone, in some way, was impacted by the tariffs but only history will tell a clear picture of how the trade war impacted commodities and the country as a whole.

Lochiel Edwards of Big Sandy said he thinks the truce will have a minimal effect, 90 days being too short a time period to do anything major to the market.

"It is probably too late for soybeans," Edwards said. "... a 90-day window here is too late to help the soybean market."

The greatest harm resulting from the tariffs were done to soybean markets, he said, adding that he does think the truce could result in China purchasing some spring wheat.

The markets are connected, Edwards said. If soy can't recover, it could result in producers replacing soybeans with corn or wheat.

"Everything is connected," Edwards said.

He added that some of the grains, spring wheat, sorghum, ethanol and dried distillers' grains, could see some benefits from the truce.

But what it means is uncertain, he said.

"It would be more helpful if China and the White House told the same story about what this 90-day truce is really about," he said.

"It is a positive step, but it doesn't really solve things," he added.

Edwards said the truce is good in that something like this has to happen before a real solution to the trade disputes can be found, but that has to be found.

"It's a sticky wicket," Edwards said. "China has been a terrible actor."

"There is a lot of fixing to be done here, big job," he added

What Montana producers should look for

Polzin said that, for the moment, without knowing the details of the truce in terms of the future of wheat, which is really important for Montana producers, he is unsure what effect the truce will have for Montana markets, unless one of China's commodities of choice was wheat, in particular high-quality spring wheat.

Havre Daily News/Ryan Berry

A cow in the middle of a herd south of Havre looks at the camera Tuesday.

He said pulse growers in Montana should look toward India.

"There is no stepping back at this point with the trade relations with India," he said.

If this is a sign across the board to negotiating for more open markets for U.S products, Polzin said, then that will be a plus for pulse producers.

"If a similar move was made with India, that would be a positive move and likely facilitate an improvement in pulse crop prices," he said.

Bekkerman also said the truce will indirectly help Montana and a key is what happens in India.

He said China is a small factor for Montana's markets and producers should keep a watch on India's election next year.

"That election will tell us quite a bit on where is India headed," Bekkerman said.

 

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