China's first retaliatory shot in an emerging trade war with the U.S. is small in overall value but could be big to farmers in Minnesota and elsewhere in the Midwest.
On Friday, a day after President Donald Trump placed punitive tariffs on Chinese products sold to U.S. companies, farmers around the country woke up to word that China was planning a 25 percent tariff on U.S. pork and related products and 15 percent on ethanol.
In all, China seeks to penalize about $3 billion worth of U.S. goods, far below the $60 billion in Chinese goods Trump is targeting, and a fraction of the $650 billion value of the countries' two-way goods trade.
But for Minnesota's 3,000 hog farmers, $717 million in annual revenue comes from exports, and China is their third-biggest customer after Mexico and Canada.
"Anything that can potentially disrupt that can really be expensive for pork processors, for farmers, and ultimately for rural communities because that's where the money flows back," said David Preisler, executive director of the Minnesota Pork Producers Association.
At the moment, China's effect on pork producers is likely to be greater than on the corn growers who provide the key ingredient for ethanol. Even so, Randy Doyal of Claremont, Minn., said he feels like "a pawn in a trade war." Doyal is CEO of Al-Corn, a farmer-owned ethanol plant that doesn't currently ship to China. "But anything that affects the export market affects everyone," Doyal said. "China is awfully large. It has the ability to swing markets."
Randy Spronk, a crop farmer and hog producer near Edgerton in southwestern Minnesota, said he worries that Chinese tariffs would make U.S. pork more expensive than meat available from competing countries such as Canada, Mexico, Spain, Germany and Denmark.
"It takes a long time to capture markets like those in China," said Spronk, who is also on the executive committee of the U.S. Meat Export Federation. "There's others that will displace us if we can't export to that market."
The U.S. exports fresh pork, processed pork such as ham and sausage, and variety meat — the largest category — that includes pig parts such as heads, ears, tails and organs that have low value in the U.S. but are popular in China. These "variety meats" accounted for nearly $98 million in sales for Minnesota farmers in 2017, according to the state's pork board.
Spronk said pork producers are watching what happens not only with China, but with NAFTA and other trade negotiations, because there's a lot at stake.
"When you invest in a sow farm, that's a 20- to 30-year investment, and you can't turn it on or off," he said. "Free trade agreements have been very important to us because they allow stability and investment to be long-term."
China, the world's largest consumer of pork, has built up its domestic supply of hogs, recently sending pork prices in that country to their lowest level in four years.
Hormel Foods Corp. sells pork products — like Spam — in China, but is unharmed by the news. The Austin-based company does not import pork, but has manufacturing facilities in China that rely on pork sourced in-country.
"We believe the tariffs may alter trade flows, but still see continuing demand for pork on a global basis," Hormel officials said in an e-mail.
Hormel purchases soybean meal for its Jennie-O Turkey Store business. The company expects the tariff will put downward price pressure in the short term on soybean meal prices. In the end, these tariffs are "neutral for us," Hormel said.
Although China has not listed soybeans as a possible target for tariffs, Minnesota soybean growers are also concerned about that potential. About half of Minnesota's soybeans are exported, and China is by far the largest customer, with sales from the state reaching nearly $1.2 billion in 2016.
One reason soybeans may not be on the list so far is that China has grown to depend on huge soybean imports to supply its immense soybean-crushing industry and as a critical feedstuff for its expanding dairy, cattle, hog and poultry farms.
For corn growers tied to ethanol production, China's retaliatory tariffs could lead to an oversupply of ethanol that could slow production and perhaps shut down some plants.
"That affects all corn farmers," Doyal said.
Doyal watched a 2016 surge in U.S. ethanol sales to China lead to a Chinese tariff that badly curtailed the market in 2017. The market opened back up in December 2017 when the Chinese purchased 22 million gallons of U.S. ethanol. That can all go away as the world's two greatest economies battle.
"China is not going to capitulate on anything," Doyal said.
Kristen Leigh Painter • 612-673-4767 Jim Spencer • 202-383-6123 Tom Meersman • 612-673-7388
Madison Equities relinquishes three downtown St. Paul buildings to lenders
Wake-up call: Minnesota man emerges from coma playing air guitar to Coldplay in his hospital bed
Songs that were playing when people woke from comas
As the workforce ages, dementia is a concern. Here are ways to help those affected.
