VIEW FROM THE SOUTH: Bet on China goes bad

Chinese buying prompted U.S. hog and soybean farmers to ramp up production that’s now looking for a home

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Representatives from the largest pork-exporting states in the U.S. happened to find themselves at a Manitoba pork meeting days after China announced it was slapping tariffs on U.S. pork.

They were as confused, and worried, as everyone else about what was coming next.

“The marketplace is obviously reacting, but it’s important for us to take a step back and not overreact,” said Drew Mogler of the Iowa Producers Association.

In 2017, more than a quarter of the U.S. pork industry’s $6.5-billion market (all figures in U.S. dollars) was generated by trade, with 1.1 billion worth of pork going to China. That had driven a lot of optimism in the sector — Mogler pointed to the bigger national herd (up three per cent in the last year) and new slaughter facilities coming online.

“The new Sioux City plant is slaughtering 9,000 pigs a day and looking to add a second shift; another plant in Minnesota is processing 4,000 pigs a day,” he said.

Canadian attendees at the Manitoba Pork Council meeting had lots of questions about what happens next, but one overrode them all.

“Where will the Americans put the pork they usually ship to China?” asked Andrew Dickson, the council’s general manager. “This is an industry that doesn’t like uncertainty, we only have 90 days of cold storage so we can’t afford to park product.”

The situation is arguably even more threatening for American soybean growers.

Over the past decade, fast-rising demand from China has fuelled a sharp rise in production of U.S. soybeans, which are set to overtake corn as the country’s most widely planted crop for the first time in 35 years. U.S. government data shows China now purchases 62 per cent of soy exports — $12 billion worth last year.

That made soybeans, the most valuable U.S. farm export and transformed its agriculture.

In Kansas, traditionally known for growing hard red winter wheat, soybean acreage is up 28.8 per cent from five years ago and 94.3 per cent from 10 years ago. The expanding Chinese market has also convinced farmers to plant soybeans in less hospitable areas.

“In my part of the world, we were not supposed to grow soybeans,” said South Dakota farmer Lewis Bainbridge, adding then “China entered into the picture.”

In Kansas, farmer Doug Keesling is wondering what to plant instead.

His fallback would typically be sorghum, but China had earlier slapped tariffs on that crop (a tit-for-tat move after earlier Trump’s tariffs on Chinese solar panels and washing machines).

“The bigger story for me is not what am I going to plant,” said Keesling. “It is how long can I sustain that as a farmer and continue producing food, not just for China but for the United States.”

The pivotal question is whether China is as dependent on U.S. soybean supplies as American farmers have become on Chinese buyers. Market experts say China will struggle to replace U.S. soybean supplies, potentially inflicting financial pain on its own companies.

“There simply aren’t enough soybeans in the world outside of the U.S. to meet China’s needs,” said Mark Williams, chief Asia economist at Capital Economics. “As for reducing dependence on imports, there are a few options, but none is a magic bullet.”

Still, American farmers are expected to feel a lot of pain — although Trump has told U.S. Secretary of Agriculture Sonny Perdue to find a way to compensate them for that hurt.

“He said, ‘Sonny, you can assure your farmers out there that we’re not going to allow them to be the casualties if this trade dispute escalates,’” Perdue said earlier this month.

How that will happen isn’t known. Two ideas being floated are funnelling some of the money from tariffs from affected Chinese imports back to farmers or using an obscure institution called the Commodity Credit Corporation. The latter, set up in the Great Depression, can borrow from the Treasury Department but the loans would have to be paid back by someone and congressional leaders are said to be cool on that option.

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