The ongoing trade war with China is rearranging trade patterns and could have a long-term detrimental effect on the U.S. agriculture economy, said Dave MacLennan, chief executive officer of Cargill, in a Sept. 25 interview on Bloomberg TV.
The actual tariffs, as well as the uncertainty they add, are already affecting the market, he said.
“China is committed to not purchasing U.S. soybeans because of pride, the trade war and also because of price,” MacLennan said. “That rearranges the supply chain.”
If the trade disruptions were fixed quickly, the market could go back to the way it was, he said, but it’s more likely China will turn to different soybean suppliers, particularly in South America.
But with Brazilian soybeans at a 25% premium and the Argentinean premium also rising, the economics may make it difficult for China.
“That’s the big question: Where does the pride and political rhetoric have to stand down to pure economics?” MacLennan said.
MacLennan said he was part of group of foreign CEOs who met with Chinese President Xi Jinping this summer before the trade situation devolved to where it is today. Jinping made it clear China would not stand down and would not be bullied.
“But price can drive a lot of decisions,” MacLennan said. “They’re a huge country and they have to keep people fed. If people get hungry or prices for food go up, they get mad. Bad things happen when people get mad.”
China might also search for new sources of protein for use in animal feed, such as corn or wheat imported from Russia.
“Russia is a very low-cost provider of wheat,” MacLennan said. “Markets are dynamic, and they will respond to price actions and also things like tariffs.”
MacLennan said with more Chinese eating chicken, pork and beef there is a need to feed more livestock. Its reliance on American soybeans was significant.
“I don’t think it can be purely replaced by Brazilian and Argentinean soybeans,” MacLennan said. “What they’ll do is find substitutes, use what they have in stock or they may come forward and say they need American soybeans.”
MacLennan said he believes Trump when he voices his support and care for U.S. farmers. But those farmers are becoming increasingly nervous as the nation moves deeper into harvest season.
“They’ve got a lot of product they want to get out of the field, and traditionally they have sent it to China,” MacLennan said. “Now they will have to find alternative markets or put into storage. Short term, if this plays out effectively, and it achieves what the administration wants it to, they’ll be happier. Longer term, I think it’s detrimental to the U.S. farm economy.”
The ag economy has suffered in recent years with bumper harvests that have lowered prices. MacLennan said he read one report that said the tariffs would have an $800 million to $1.8 billion impact on Iowa’s economy. The state is a major producer of corn and pork.
Farmers are resilient, and if tariffs are still in place come spring, it will have an impact on planting intentions.
“They will make decisions to plant other crops or to not plant at all,” he said. “They might plant alternative crops. A lot of farmers are rotating to non-GMO or organic.”
Cargill has talked with legislators and the secretaries of commerce and agriculture, and recognizes they are pursuing a tactic to make trade fairer and more balanced, MacLennan said.
“We are an American company; we understand what the reasons are behind some of the moves,” he said. “But we just think there are other tactics that could be pursued to improve trade relations.”
By Susan Reidy
Source: World Grain
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