Landus Cooperative is the sixth-largest grain company in North America, and it buys soybeans and corn from local producers to sell to companies nationally and around the world.
Landus Cooperative is the sixth-largest grain company in North America, and it buys soybeans and corn from local producers to sell to companies nationally and around the world.

April 27, 2018

In retaliation against the United States amidst threats of a trade war, China struck back with threats that could dismantle the heartland of Iowa’s rural economy.

The Trump administration announced on March 1 plans to impose tariffs of 25 percent on steel and 10 percent on aluminum — creating a tax on foreign shipments into the U.S.

The proposal is a result of President Donald Trump’s plan to scale back the U.S. trade deficit with China, which increased from $28.2 billion to $375.2 billion in 2017, according to the U.S. Census Bureau and U.S. Bureau of Economic Analysis — meaning the U.S. is buying more products from China and vice versa.

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump said on Twitter. “Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

The response that came from Bejing, China: A 25 percent tax on American exports, including airplanes, cars and soybeans.

The brewing trade war has many Iowa farmers worried.

A tariff is a tax on an imported or exported good. The Tariff Act was adopted to the U.S. in 1789 as a plan to protect U.S. companies from competition outside of the country.

The U.S. currently exports between 50 and 60 percent of its soybeans to China, said Roger Fray, chief commodity marketing officer at Landus Cooperative in Ames. Landus is the sixth-largest grain company in North America. The company buys products such as soy and corn from farmers and sells them to businesses across the U.S. and around the world.

“We’re very reliant on exports, so any kind of tariff discussion from importing countries is troubling at best,” Fray said.

Fray said that two-thirds of the soybeans that Landus sells are exported out of the U.S.

To prepare for the worst, the farming market is already adjusting, he said.

“The values we are able to sell today are stronger than they were six weeks ago,” Fray said. “The Chinese pace is just as active as anyone would have predicted.”

He said China is trying to get ahead of the possibility of heavy taxes by locking in rates with the U.S. now.

Compared to six weeks ago, the freight rates — the cost to move the products — are incrementally higher, Fray said.

--The freight rate to the Gulf is 20 cents higher per bushel since last year and the cost of getting the vessel from the Gulf to China has increased by more than $1 per bushel since last year, Fray said

In response to the tariffs, farmers who sell their products to Landus would bring in less money, as the company paid more to ship its products.

“The price we could pay to the farmer would go down,” Fray said. “Our members and their income would be affected. It would shift where we ship grain to.”

Farmers in western Iowa such as Keith Schulte are apprehensive about the possibility of tariffs. They wonder what the future will hold for small farms.

A corn and soy farmer near Wall Lake, Schulte, 28, is new to the farming industry. He said that if they were imposed, the tariffs would put more pressure on new Iowa farmers such as himself.

“Farmers kind of know what to expect — it’s kind of plateaued out,” Schulte said. “I think we’ve kind of hit our bottom, and with these tariffs, we might hit a new bottom. It might drive some guys out.”

He added that right now, no one knows what to expect or what to prepare for.

“Everyone has been kind of holding their breath and just waiting to see what happens,” Schulte said. “Nobody wants to see these tariffs, I don’t think.”

Coon Rapids corn and soy farmer Jason Nees said he is ready to fight for Iowa farmers.

Recently, Nees, the vice president of the Carroll County Farm Bureau, recently went to Washington, D.C., and met with U.S. Sen. Joni Ernst and U.S. Rep. Steve King, who represents Iowa’s 4th District — covering 32 counties in the state’s northwest corner.

His takeaway from the meeting, Nees said, is that both politicians are doing the best they can to explain to the Trump administration how the tariffs would affect rural Iowans.

“To make money — farming is already tight,” Nees said. “If the tariffs got imposed, I think there is potential for the markets to drop even farther, which would not be good. Farming is pretty much the root of Carroll County and Iowa.”

Nees also complimented Trump on his ability to keep trade open with Canada and Mexico — two of the largest buyers of Iowa commodities.

Iowa is one of the largest producers of corn, soybeans and pork, said Chad Hart, an associate professor of economics and crop markets specialist for Iowa State University.

Hart said that in 2016, the U.S. Department of Agriculture reported that the U.S. sent more than $23 billion of soy, about $10 billion of corn and $4.2 billion of pork to Mexico. Of that percent, Iowa makes up 10 percent of the soy, nearly 20 percent of the corn and almost half of the pork exported to Mexico.

“When we think about Iowa, it would be corn, soybeans and pork,” Hart said. “Mexico, Canada and China are our largest exports.”

Nees added that keeping trade open with China is a must.

“I definitely see it affecting the markets,” he said. “It’s kind of a toss, because I think the markets will reflect that short term. Even a dollar drop in the market could be substantial.”

Other individuals throughout the Carroll area have said they are thankful they don’t rely on farming as their main source of income.

“I’m glad I’m not a farmer, because I would be scared up to my eyebrows based on what the federal government’s doing with tariffs,” said John Brockelsby, a Glidden resident and retired chairman of the business education department at the Carroll campus of Des Moines Area Community College, at the Carroll Chamber of Commerce legislative forum April 21.

State Rep. Brian Best, who represents Carroll and Audubon counties and part of Crawford County, said the tariffs would hurt not just Iowa’s farmers, but all of Iowa.

“The best-case scenario is that we reach some kind of an agreement with China, and the tariffs aren’t even going to be implemented and we’d get this thing worked out,” Best, R-Glidden, said during the forum. “Worst-case scenario, we’re going to see probably 25 percent less exports going out, and that’s going to be tough for the state of Iowa. That’s going to be tough for our farmers, and that’s going to be tough for the state, because there’s going to be a lot less tax revenue coming in.”

U.S. Rep. King, R-Kiron, a construction company owner who said he vividly recalls living in rural Iowa during the farm crisis of the 1980s, said he’s highly concerned about the effects on ag markets of President’s Trump’s $50 billion in tariffs on Chinese imports. The Chinese quickly struck back on the U.S. ag economy.

“If Tom Clancy were alive today writing a novel about a trade war, how it begins and how it plays out, we would be in about chapter two right now in reality,” King said. “And the trade war now has begun, and it could be dialed back. I hope it is. Having said that, I never would have put the tariffs on steel and aluminum that were put on. We have to play it out now, because that decision is made.”

Both U.S. Sen. Joni Ernst and U.S. Sen. Chuck Grassley spoke about the importance of trade with China — especially for soybean farmers.

“Soybean farmers are perhaps the most vulnerable to Chinese retaliation, as nearly one in every three rows of soybeans grown in the U.S. is exported to China — valued at $14 billion every year,” Ernst said. “Already, soybean prices have dropped dramatically since China’s promise to slap a 25 percent tariff on U.S. soybeans, among other commodities and goods.”

Grassley amplified Ernst’s concern for Iowa farmers, saying that double-digit tariffs would be devastating for Iowa’s farm economy.

“Make no mistake, if U.S. farm exports are squeezed out of the Chinese market by double-digit tariffs, the rural economy would suffer a severe downturn,” Grassley said. “That’s why I have been urging the president and his administration to carefully consider the devastating repercussion that tariffs present for rural America.”

Not only are Iowans expressing their concerns, but Chinese soy buyers also are urging producers to fight against tariffs.

Landus recently met with a lead Chinese dairy industry that is interested in buying soy products such as soybeans, SoyPlus and SoyChlor from Landus.

While in Iowa, the buyers expressed major concern about the possibility of tariffs, Fray said.

If the tariffs were imposed, Fray said a typical county could see an effect of about $12 million to $15 million in gross revenue based on grain trade.

“We’re active with those conversations either directly or indirectly on a national or international level,” Fray said. “The reassurance should be that there are a lot of people that want trade to continue, and they don’t want these tariffs.”

Douglas Burns and Rebecca McKinsey contributed to this story.