Here's why Iowa farmers, though hopeful, remain skeptical about U.S.-China trade deal
After 18 months of riding a trade roller coaster, Iowa farmer Aaron Heley Lehman says the growers he talks with look at the U.S.’s initial deal with China with “a little bit of optimism, tempered with a lot of skepticism.”
“We thought we’d turned the trade corner many times before,” said Lehman, president of the Iowa Farmers Union board.
"It was a little bit of good news, then a lot of bad news. A little bit of good news, then a lot of bad news," said Lehman, who farms near Alleman. "Hopefully, we're on the right road now."
Iowa farmers — especially soybean, pork and beef producers, analysts say — could be big winners if China lives up to its pledge to buy an additional $32 billion in U.S. farm goods over the next two years. But that may be a big if.
The spending would be on top of about $19 billion, the amount Beijing spent for U.S. agricultural goods in 2017, the year before the U.S.-China trade war started. China says it will spend $12.5 billion more this year and $19.5 billion next year, pushing total farm purchases to $32 billion in 2020 and $39 billion in 2021.
The supersized purchases would be 24% to 50% more than the $25.9 billion record set in 2012, which "seems really unattainable unless China buys a lot of stuff and sticks it in storage," said Chad Hart, an Iowa State University agriculture economist.
In addition, China has agreed to make the purchases even though most of the tariffs it has levied against U.S. farm products are expected to remain in place.
"Until the retaliatory tariffs are gone, it’s going to be tough to see a huge increase in exports," said Trent Thiele, who raises pigs near Elma, in northeast Iowa.
But the U.S.-China deal, signed Wednesday, combined with the Senate's passage Thursday of the U.S. trade agreement with Mexico and Canada, is fueling farmers' hope that trade relations could be stabilizing.
Mexico and Canada are Iowa's largest foreign agriculture trade partners.
"It feels a lot more promising than it did a year ago," said Thiele, president of the Iowa Pork Producers Association board.
Hart, however, said many questions remain about the deal signed by President Donald Trump and Chinese Vice Premier Liu He. In addition to agricultural goods, China said it would buy nearly $78 billion in U.S. manufactured goods over two years, $52 billion in U.S. energy products and $38 billion in business, financial and insurance services. Altogether, the country plans to spend $200 billion.
China's shopping list uncertain
Just what China plans to take to the checkout counter remains to be seen.
Certainly, China will stock up on meat, in particular pork, following the decimation of the country's pig population in an African swine fever outbreak that has resulted in the loss of millions of pigs, said Dermot Hayes, an ISU agriculture economist.
China already has lowered one tariff on pork "independently of the Trump deal," Hayes said. "They're signaling that the country is going to become a reliable importer of pork."
Joe Kerns, president of Kerns and Associates, an agricultural risk management consultant, said China also will stock up on beef, poultry, milk and eggs.
China struggles with a "complete animal protein deficit," Kerns said. With rising prices for pork and beef, Chinese consumers need lower-cost poultry, eggs and milk, as well.
Kerns already sees the demand in higher futures prices for pork and beef. "We have some optimism built into the futures market," he said.
Experts disagree about the quantity of soybeans that will end up on China's shopping list.
Michael Dolch, the Iowa Soybean Association's director of public affairs, said China is trying to rebuild its pork industry, and soybeans, used to feed pigs, likely will be part of its $200 billion in purchases.
To meet its purchase pledge, China would need to begin to reduce its tariffs on U.S. farm products, Dolch said. The U.S. plans to maintain tariffs on about $370 billion in Chinese goods, while China has tariffs on more than $110 billion worth of U.S. goods.
"If China makes good on the $32 billion commitments, we have to get closer to the pre-2018 tariff levels," Dolch said.
Kerns is a little less optimistic about soybean exports to China, given the loss of pigs to African swine fever. "Dead pigs don't eat soybean meal," he said.
Hart said he expects China's soybean purchases will grow, but that there is uncertainty because the country's needs have changed.
"It's a combination of tariffs and African swine fever. Both those have dramatic impacts on what China needs right now," he said. "And China is trying to line up what it needs with what it's required to do under this trade deal."
Hayes said COFCO, one of China's state-owned food processing holding companies, can purchase U.S. goods and bypass tariffs other importers would have to pay. And U.S. producers can use the soybeans if they again become major suppliers of pork to China.
Should that happen, he said, and China sees less need to fully rebuild its herd, it could be a boon to Iowa, the largest U.S. pork producer. The state raises about 50 million pigs annually and also is the second-largest U.S. soybean grower.
"It means more jobs, more income, stronger rural communities and stronger Main Street businesses," said Jen Sorenson, a vice president at Iowa Select Farms, a large pork operation.
But even with the buying binge, Iowa farmers fear the U.S. may never regain its market share in China, the world's largest buyer of soybeans. Brazil and Argentina, in particular, have stepped in to fill the gap.
"There has been permanent damage done, but we're hopeful trade will grow over time," Dolch said. "It will take a good-faith commitment from China to make that happen."
Hart worries about what happens after the two-year agreement ends.
"The big questions is whether there will be market support for these products after two years," he said. "China could walk away again."
'One less thing for us to worry about'
Dave Walton, who farms near Wilton, said he would be happy if U.S. soybean growers saw trade relations return to normal.
But he's unsure how long it may take, especially as U.S. growers have to battle competitors to regain their foothold in the Chinese market.
"We've been in a five- or six-year downturn, made worse by the trade" disputes, said Walton, an Iowa Soybean Association board member. "If we get China back on line buying soybeans, it will be one less thing for us to worry about."
Since 2018, the Trump administration has provided $28 billion in aid to help U.S. farmers hammered by ongoing trade disputes.
The U.S. Department of Agriculture estimates trade assistance and other direct government aid accounted for about one-third of U.S. farm income in 2019. Without that help, the department says farm income would have been $63.6 billion — 8% lower than in 2018.
Regaining access to China's market won't be enough to lift U.S. and Iowa farmers from their lingering downturn, farmers and economists say, but it could give farmers firmer footing toward recovery.
Wet weather last year cut corn and soybean supplies, Hayes said, with a record 19.6 million acres unplanted because of soggy conditions.
"The weather and market facilitation payments helped us break even this year," he said. With normal production, "just to break even, we have to have China."
Despite the president's claim that farmers will need new tractors to keep up with demand following the initial China deal, Walton said he's focused on repaying debt, not buying new equipment.
"I spend a lot of time in the shop fixing" machinery, he said, adding that he's not alone. "I don't think there will be a run on John Deere tractors in the next six months."
Donnelle Eller covers agriculture, the environment and energy for the Register. Reach her at email@example.com or 515-284-8457.
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