Tag Archives: Trade

COLBY, Kan. — The trade conflict between the United States and China, which began brewing early last year pulled U.S. corn prices down an average $0.20 per bushel per month in the first six months of 2019, according to a Kansas State University agricultural economist.

“Since December 2018, U.S. corn prices had been moving in a pattern contrary to a normal seasonal price pattern found in Kansas, with essentially no seasonal price increases,” said Dan O’Brien, K-State Research and Extension agricultural economist in a report released May 17.

Seasonally, corn prices tend to move higher during the spring and summer when the crop is planted and growing and often come down during the fall harvest when the new crop is available to the market.

Much of the focus in recent months has been on how the trade tensions have cut soybean exports to China, pushing soy prices lower, O’Brien said, but the potential spillover effect is that U.S. farmers will plant fewer acres to soybeans this year and instead plant more corn.

“And that sentiment has held sway among the corn trade until recently in mid-May 2019 when 2019 U.S. corn planting problems became serious enough to cause corn futures prices to begin trending higher,” he said, referring to unusually wet spring weather which delayed planting in some areas.

After analyzing data, O’Brien said that from January to May this year, U.S. corn prices were $0.07 to $0.34 per bushel under levels they would have been if normal, seasonal average price patterns – those that are typically seen in Kansas – had prevailed.

Market perceptions about the trade negotiations seem to have had a negative effect on U.S. corn markets, said O’Brien, citing trader data from the Commodity Futures Trading Commission that confirmed a bearish “short” sale aggregate position of speculative traders that started in January 2019 and trended to record bearish levels in April. Someone with a “short” position in the futures market makes money as the price of a commodity declines.

The U.S. Department of Agriculture also increased its projected U.S. corn ending stocks-to-use to 14.45% in May 2019 from 11.85% in January for the corn crop harvested last year. During that time, the only changes affecting supply and demand were on the usage side, with market expectations for U.S. corn use declining, he said. USDA also projected this year’s average corn price in May at $3.50 per bushel, down $0.10 from its projection in February.

Further, China may be eyeing Brazil’s crop as it moves away from buying U.S. corn.

“The success of the 2019 Brazilian second corn crop also contributed, likely in a sort of ‘piling on’ negative, confirming manner,” O’Brien said.

With the trade dispute ongoing even as farmers are planting this year’s crop, he said, CFTC data indicate traders are beginning to focus more on planting concerns linked to weather-related delays, with some speculators moving away from short positions and toward the long side, indicating they think prices may go up. It remains to be determined, however, if the trade conflict will continue to weigh on the market to the same degree that it did through mid-May.

More information is available on the K-State agricultural economics website www.agmanager.info

WASHINGTON – U.S. Senator Jerry Moran (R-Kan.) – member of the Senate Appropriations Subcommittee on Agriculture – cosponsored the Agricultural Export Expansion Act of 2019, legislation to remove a major hurdle for American farmers and ranchers to selling American agricultural products in the Cuban market. The bipartisan bill would support jobs in Kansas and across the country by lifting restrictions on private financing for U.S. agricultural exports to Cuba.

“This bipartisan legislation, which would allow for the private financing of ag exports to Cuba, represents an important step forward in our work to open Cuban markets for Kansas farmers and ranchers,” said Sen. Moran. “With low commodity prices and an ongoing trade war, our producers can only benefit from increased market access.”

The 2018 Farm Bill took steps to help American agriculture access the Cuban market by allowing funding for U.S. Department of Agriculture export promotion programs for U.S. agricultural products to be used in Cuba. However, the biggest barrier for producers as they seek access to Cuba is the Trade Sanctions and Reform Act (TSRA) prohibition on providing private credit for those exports, which forces Cubans to pay with cash up front for American-grown food. As a result, American farm goods have become less competitive, and Cuba has turned to other countries who are able to directly extend credit to Cuban buyers for transactions. This bill would amend the TSRA to allow for private financing of agricultural exports and level the playing field for American farmers competing in the global market.

The legislation is authored by U.S. Senators John Boozman (R-Ark.) and Michael Bennet (D-Colo.) and is cosponsored by U.S. Senators John Hoeven (R-N.D.), Tom Udall (D-N.M.), Kevin Cramer (R-N.D.), Angus King (I-Maine), Mark Warner (D-Va.), Susan Collins (R-Maine), Debbie Stabenow (D-Mich.), Amy Klobuchar (D-Minn.), Mike Enzi (R-Wyo.) and Patrick Leahy (D-Vt.).

Full text of the legislation can be found here.

Item to note:

  • In March, 2017, Sen. Moran introduced the Cuba Trade Act of 2017, legislation that would fully restore trade with Cuba.

U.S. Senator Ben Sasse, an outspoken trade advocate and a China hawk, issued the following statement regarding the Trump Administration’s deal to lift steel and aluminum tariffs on Canada and Mexico.

“China is our adversary; Canada and Mexico are our friends. The President is right to increase pressure on China for their espionage, their theft of intellectual property, and their hostility toward the rule of law. The President is also right to be de-escalating tension with our North American allies. Today’s news that the Administration is dropping steel tariffs on Canada and Mexico is great for America, great for our allies, and certainly great for Nebraska’s agriculture industry.”

The Trump administration today announced plans to lift the 25% tariff on steel and the 10% duty on aluminum imports imposed last year on Canada and Mexico. Both countries subsequently retaliated against a host of U.S. products.

“We thank the administration for ending a trade dispute that has placed enormous financial strain on American pork producers,” said David Herring, a pork producer from Lillington, N.C., and president of the National Pork Producers Council. “Mexico’s 20% retaliatory tariff on U.S. pork has cost our producers $12 per animal, or $1.5 billion on an annualized, industry-wide basis. Removing the metal tariffs restores zero-tariff trade to U.S. pork’s largest export market and allows NPPC to focus more resources on working toward ratification of the U.S.-Mexico-Canada Agreement (USMCA), which preserves zero-tariff trade for U.S. pork in North America.”

Last year, Canada and Mexico took over 40% of the pork that was exported from the United States. NPPC has designated USMCA ratification as a “key vote” and will closely monitor support of the agreement among members of Congress. U.S. pork exports to Mexico and Canada support 16,000 U.S. jobs.

“We are also hopeful that the end of this dispute allows more focus on the quick completion of a trade deal with Japan,” Herring added. “U.S. pork is losing market in its largest value market to international competitors that have recently implemented new trade agreements with Japan.”

According to Dr. Dermot Hayes, an economist at Iowa State University, U.S. pork will see exports to Japan grow from $1.6 billion in 2018 to more than $2.2 billion over the next 15 years if the U.S. quickly gains access on par with international competitors. Hayes reports that U.S. pork shipments to Japan will drop to $349 million if a trade deal on these terms is not quickly reached with Japan.

WASHINGTON, D.C. – The U.S. Senators Michael Bennet (D-CO) and John Boozman (R-AR) introduced the Agricultural Export Expansion Act (S.1447), legislation that would make it easier for American farmers to sell their goods to Cuba by removing restrictions on private financing for U.S. agricultural exports to the island nation. 

“These restrictions are arbitrary and serve no purpose other than hurting our farmers and the Cuban people,” said James Williams, President of Engage Cuba. “As U.S. producers across sectors struggle with sluggish markets and Chinese tariffs, it’s time we move this bad policy out of the way of our farmers, who deserve to be able to compete on equal ground for market share in Cuba. We know there’s demand for quality U.S. products, and we should let producers meet that demand.”

Despite the U.S. trade embargo on Cuba, U.S. producers have been able to export to the island since 2000. However, remaining restrictions on financial transactions involving Cuba have barred U.S. producers from offering financing to Cuban buyers, severely stunting export potential.

“We’ve heard loud and clear that American farmers and ranchers want the opportunity to compete and sell their product around the world, including in the Cuban market. Despite our progress in the 2018 Farm Bill, existing trade restrictions with Cuba continue to put our farmers and ranchers at a disadvantage,” Senator Bennet said. “This common-sense bill would unlock new market opportunities for Colorado farmers and ranchers who have a tremendous amount to gain from competing in the Cuban market.”

“Arkansas farmers need new markets and one solution is sitting less than one hundred miles off our coast. Cuba imports 80 percent of its food, but Americans start out at a disadvantage since private financing is not allowed. Our bill removes this barrier, allowing our agricultural producers to compete, while simultaneously exposing Cubans to American ideals, values and products. It’s a small step, but one that can yield big dividends for American farmers and the Cuban people,” said Senator Boozman.

Cuba imports about $2 billion in agricultural products annually. However, due to the cash-in-advance requirement, Cuba is left with little choice but to turn instead to international competitors like the European Union, Brazil, and Vietnam. U.S. agricultural exports to Cuba have declined every year since 2009 in terms of dollar amount, market share, and in the variety of products shipped. The Congressional Budget Office estimates that lifting these limits on American farmers through the proposed legislation would save U.S. taxpayers $690 million over 10 years.

Farmers seeking to export to Cuba won some success in the 2018 farm bill with aprovision that allows U.S. agricultural producers to use federal market promotion dollars for agricultural exports to Cuba. A cornerstone of Engage Cuba’s legislative advocacy efforts in the last Congress, this was the first law to repeal part of the U.S. embargo on Cuba in nearly 20 years.

The Senate Agricultural Export Expansion Act follows the introduction of its House companion bill H.R. 1898, the Cuba Agricultural Exports Act, in March by Congressman Rick Crawford (R-AR-1) and Congresswoman Cheri Bustos (D-IL-17).

More information on Cuba’s agricultural market is available here.

The world is lurching ever closer to a full-blown trade war as the U.S., China, Europe, Canada, and Mexico talk tariffs and retaliation. President Donald Trump made the initial salvoback in March, when he placed duties on steel and aluminum. These actions have prompted significant concern and discussion about the wisdom of this action.

As an economist who shares some of those concerns, I believe it’s important to first understand what a tariff actually is and does before we can determine whether Trump’s new trade barriers are good or bad.

Two kinds of tariffs

A tariff, simply put, is a tax levied on an imported good.

There are two types. A “unit” or specific tariff is a tax levied as a fixed charge for each unit of a good that is imported – for instance $300 per ton of imported steel. An “ad valorem” tariff is levied as a proportion of the value of imported goods. An example is a 20 percent tariff on imported automobiles. Both tariffs act in similar ways.

Tariffs are one of the oldest trade policy instruments, with their use dating back to at least the 18th century. Historically, the main objective of a tariff was to raise revenue. In fact, before ratifying the 16th Amendment in 1913 and formally creating the income tax, the U.S. government raised most of its revenue from tariffs.

Even so, the main purpose of a tariff these days tends to be about protecting particular domestic industries from foreign competition, alongside raising revenue.

Examining a tariff’s impact

The impact of a tariff depends on whether the levying country is large or small – not in terms of size but the potency of its trade and ability to influence world prices.

Ghana, for example, roughly the size of Minnesota with a population similar to Texas, is the world’s top exporter of cocoa. The Netherlands, meanwhile, slightly smaller than New Jersey, is the commodity’s biggest importer. As such, both countries’ trade policies can have a significant impact on the price of cocoa on global markets.

So if the Netherlands were to levy a tariff on imports of Ghanaian cocoa to protect a nascent – and currently imaginary – industry of small Dutch cocoa bean growers, there would generally be three effects.

First, the price of the import good, cocoa, would rise, making it more costly for domestic consumers of the product. This would be bad news for Dutch chocolatiers – the Netherlands is the world’s biggest exporter of cocoa butter – and citizens – who eat a lot of chocolate. But it’d be good news for companies in the domestic import-competing industry – the experimental Dutch farmers growing cocoa plants in a greenhouse – because the good they produce is now cheaper than the import, and so the cocoa butter makers would buy more of the local variety.

Second, because the tariff-levying country is large, it drives down the export price of the good in question. So the pre-tariff price at which Ghana can export cocoa to the Netherlands declines, Ghanaian growers and producers make less money, and the country’s economy is hurt. Economists call this a “terms of trade gain” for the country imposing the tariff. Such a tariff ensures that the price of cocoa in the Netherlands does not rise by the entire amount of the tariff.

Finally, the overall volume of trade in the product between the countries involved decreases because the demand for and supply of the good falls.

If the tariff-levying country is small, however, there are only two effects: The good’s price will go up – domestic consumers will pay more, while producers will sell more – and the country’s trade of the product will decline. The action will have no impact on global prices.

Benefits and costs

For a “large” country, the benefits of a tariff are mixed.

Consumers, whether businesses like Dutch cocoa butter makers or individuals who enjoy a tasty bar of dark chocolate, face higher prices and hence are the losers. The industry being protected, however, benefits by becoming more competitive and selling more of its wares. In addition, the government will gain a new source of revenue.

The net effect boils down to whether any gains in the terms of trade are greater than the resulting “efficiency loss” – that is, how much the tariff artificially distorts consumption and production decisions in negative ways.

If the magnitude of the terms of trade gain is larger than that of the efficiency loss, then the country benefits from the tariff. If not, then it loses.

For a small country with no market impact, the terms of trade gain is zero, hence a tariff unambiguously makes it worse off.

Political economy of tariffs

The fact that a large country can, in some cases, be better off with a tariff has led some to suggest that such nations ought to, when necessary, levy “optimal tariffs” against their trade partners.

An optimal tariff maximizes the difference between the terms of trade gain and the efficiency loss and hence is essentially a “beggar-thy-neighbor” trade policy.

In other words, the problem with such strategic tariffs is that in addition to frequently being illegal, they are not implemented in a vacuum. Aggrieved trade partners are likely to respond with appropriate tariffs or other trade policy instruments of their own.

These kind of sequential “tit-for-tat” actions can easily degenerate into a trade war. This is in part why trade economists are typically against restricted trade and for free trade.

TOKYO (AP) — U.S. Agriculture Secretary Sonny Perdue has picked up his barbeque tongs to convey his message to Japan: Buy more American beef. Perdue said Monday that as a top consumer of U.S. beef, Japan should treat the U.S. fairly.

He said he hoped President Donald Trump and Japanese Prime Minister Shinzo Abe will strike a trade deal during his boss’s visit to Japan later this month, but acknowledged more time might be needed.

Thailand has a number of trade barriers that operate as a de facto ban on U.S. pork exports. It has been unresponsive to calls from the United States to lift the restrictions. Thailand is a top beneficiary of the U.S. Generalized System of Preferences (GSP) program, which gives duty-free treatment to certain goods entering the U.S. The program allows for removal of a country’s benefits if it fails to provide the U.S. “equitable and reasonable access” to its market.

The Nationanl Pork Producers Council has called for Thailand’s preferential access to the U.S. market to be revoked or reduced if it does not end its ban on U.S. pork, and in May 2018 petitioned the U.S. Trade Representative to review the country’s GSP eligibility. NPPC’s GSP petition is moving through the process.

Meanwhile, the U.S. has terminated Turkey’s Eligibility for the GSP program and may also revoke India’s GSP status. NPPC is hopeful that Thailand understands that the U.S. is serious about enforcing trade obligations such as providing reciprocal market access to pork and other U.S. products.

 

WASHINGTON, D.C., May 10, 2019 – The Trump administration today indicated it is planning a trade relief package in response to the U.S. trade dispute with China. The following statement may be attributed to David Herring, a pork producer from Lillington, North Carolina and president of the National Pork Producers Council:

“U.S. pork has suffered from a disproportionate share of retaliation due to trade disputes with Mexico and China. This retaliation turned last year — which analysts had forecast to be profitable — into a very unprofitable time for U.S. pork producers. The financial pain continues; the 20% punitive tariff on pork exported to Mexico alone amounts to a whopping $12 loss per animal.

“While there is no substitute for resolving these trade disputes and getting back to normal trade, NPPC welcomes the offer of assistance from President Trump. We stand ready to work with the USDA to facilitate U.S. pork exports as food aid to a number of nations. This assistance should not cannibalize commercial trade. Rather, it should help people in need who otherwise would not have access to this high-quality U.S. protein.

“Pork producers have been innocent bystanders in these trade disputes. Unlike most of the population, they have suffered severe economic dislocations as a result of trade disputes.  It is fair and right that the U.S. government purchase significant quantities of pork over the next 18 months to ship as food aid to help ease the financial burden placed on producers.”

A new report says a nearly $200 million decline in Nebraska’s agricultural exports in 2017 was driven by President Donald Trump’s threats to impose tariffs on U.S. trading partners.

The Nebraska Farm Bureau report attributes the drop to decreases in soybean and corn exports, while beef and pork exports both increased in 2017.

The bureau’s senior economist, Jay Rempe, says Trump’s talks of tariffs in January 2017 caused a decline in soybean and other commodity prices. Rempe points out that China’s retaliatory tariffs didn’t occur until May 2018.

The findings come as Trump imposed his latest tariff hike on Chinese goods Friday. Beijing vowed retaliatory measures.

Rempe says Nebraska’s agricultural community will continue to face pressure unless the administration resolves its trade disputes with China, Mexico and other countries.