As the U.S.-China trade war escalated Monday, wheat experts in Montana said conditions couldn’t worsen much from where they’ve been since 2018.
Wheat is on China’s 196-page list of U.S. products facing retaliatory tariffs of up to 25 percent. China is responding to an expanded list of U.S. tariffs on products from China.
Sales of U.S. hard red spring wheat to China have already plummeted to 34,000 tons over the last year, down from a half-million tons in 2017. Montana and North Dakota farmers felt the pinch because those states are the largest U.S. producers of hard red spring wheat shipping to Asian Pacific markets. The data comes from U.S. Wheat Associates.
“Basically in the past year, it’s been close to zero,” said Collin Watters, Montana Wheat and Barley Committee bureau chief.
Before the trade war fired up in mid-2018, China is a distant sixth in the rankings of the Montana wheat buyers, purchasing about $26 million worth a year. In recent years, exports of Montana wheat have been about a quarter the size of exports to Japan, the state’s big customer. Japan, the Philippines and Mexico top Montana’s list of buyers. The state exports more than 70% of wheat its farmers grow, with annual values between $600 million and $1 billion.
There are bigger worries about losing market share in Japan because of faltering trade conditions there, but China not being a top-5 buyer of Montana wheat doesn’t mean a loss won’t be felt. China has a quota system that limits how much wheat its companies can purchase, but when they buy, they like hard red U.S. spring wheat, said Lola Raska of Montana Grain Growers Association.
“It’s clear their millers and bakers prefer hard red spring wheat from the United States because of the quality. That’s what they have filled their quota with,” Raska.
The trade war with China will be felt in other ways the prices for everything from heavy machinery to fertilizer increase because of tariffs, Raska said. Farmers are hurting right now. The price of wheat has fallen into the $3 a bushel range for ordinary hard red winter wheat. Some of the alternative crops that farmers turned to when wheat prices started to slide a couple years ago are now facing trade battles of their own.
Peas and lentils, which looked like good-paying alternatives for wheat farmers two years ago, now face tough market conditions in India, where conditions have always been swung according to the local production but now face a trade dispute over non-U.S. agricultural products like motorcycles.
Trade terms with Japan have become unfavorable as a multi-nation trade deal begins cutting tariffs on U.S. wheat competitors like Canada and Australia. That trade deal, which started as the Transpacific Pacific Partnership was initiated by the United States but abandoned by Republicans and Democrats in the populist wave of the 2016 elections. U.S. wheat farmers now find themselves on the outside of TPP as tariff reductions for competitors put U.S. wheat at a 50-cent-per-bushel disadvantage.
The challenge, Watters said, isn’t just losing the wheat sales in Japan while the United States tries to broker a different deal, it’s losing buyers for the long term. It’s going to be difficult to get Japanese buyers to return to U.S. wheat after they’ve established business relationships with Canada and Australia.
There’s been some progress in finding new markets for U.S. wheat. In March, President Trump and Brazilian President Jair Bolsonaro struck favorable trade terms that should improve U.S. wheat sales to Brazil. U.S. Wheat Associates reports the agreement could help move 28 million tons of wheat.
However, new markets for U.S. wheat often come with lower prices associated with a crop looking for a new home, Watters said. What Montana farmers need is the stability that comes with favorable trade terms.