Truck driver Seth Meyer from Neufeld Harvesting

In this file photo, truck driver Seth Meyer from Neufeld Harvesting guides the grain cart filling the last truckload of winter wheat near Hardin. Montana farmers plan to plant 310,000 fewer acres in wheat this year.

Montana wheat farmers are eyeing a potential U.S. trade war with China, though tariffs would have moderate effects on state commodities.

China in recent years has been a reliable buyer of hard red spring wheat shipped from the Pacific Northwest. Sales in 2017 amounted to 26 million bushels, according data released last week by U.S. Wheat Associates, with about half the grain coming from Montana.

A 25 percent tariff on 103 U.S. products, including wheat, would hurt sales, said Cassidy Marn, trade and marketing manager for the Montana Wheat and Barley Committee. China warned of tariffs last week in response to President Donald Trump ordering tariffs on aluminum and steel to bolster U.S. production.

The bigger loss for Montana wheat would be future opportunities.

“It’s unfortunate because it’s a market we’re going to develop, and this kind of puts a dent in things,” Marn said.

Montana’s hard red spring wheat sales to China last year amounted to about 17 percent of the state’s 2016 production for that particular variety and 6 percent of the total wheat crop. While 13 million bushels shouldn’t be minimized, Montana farmers harvested nearly 211 million bushels that year. The value of the China sales would be about $65 million, based on the average price for hard red spring wheat at the time, as listed by the National Agricultural Statistics Service of the U.S. Department of Agriculture.

The big agriculture losers in a U.S. trade war with China are corn and soybean farmers, said Vince Smith, a Montana State University economist for whom trade is a specialty. Montana grows neither crop for export.

“A trade war with China, along with other trade disputes with Europe and other countries over steel and aluminum tariffs, may have long-term, adverse consequences for the U.S. agricultural sector as a whole and particularly for commodities like soybeans, which are directly targeted,” Smith said. “Actions like tariffs on aluminum have the potential to raise home construction costs, prices on automobiles, and increase unemployment.

“For wheat, we’re talking about some impact, but it’s not like soybeans,” Smith said.

Beef, wheat and other issues

For now, Montana farmers are quietly watching what tariffs might mean to a potentially lucrative wheat market, said Lola Raska, executive vice president of the Montana Grain Growers. There’s a lot of potential at stake for Montana, even if current sales involve a fraction of state commodities.

There’s the promise of a $200 million Montana beef sale to China, with a $100 million investment in a Montana meat packing plant. Miles City rancher Fred Wacker and the Montana Stockgrowers have a memorandum of understanding with online Chinese retailer JD.com. The partners had hoped to ship as many as 80,000 butchered cattle to China over the next three years. A 25 percent tariff complicates the agreement. U.S. beef is already challenged by cattle sold by Australia, which because it’s closer to China loses less money to shipping.

Still, 80,000 head of cattle in a state with a million sent to market every year is a small percentage, observers agree.

There are other issues that could come up as farmers respond to tariffs on U.S. goods, Raska said. Soybean and corn farmers could choose to plant wheat this year as a way to avoid selling into a tough China market. A shift to wheat would increase production and lower the price on a crop that Montana farmers say they will grow more than 4 million acres of this year.

“We don’t have many options about what we can grow, and with those kinds of effects on the crops we grow, I think a lot of farmers are nervous,” Raska said. “It’s a shame that historically agriculture has been a pawn in trade.”

Even without tariffs, how much U.S. wheat China will buy is limited, said Gordon Stoner. The Outlook farmer and past president of the National Association of Wheat Growers was in China on a trade trip shortly before trade war threats erupted.

China is the world’s largest wheat producer, but it’s also a wheat importer because it does not grow all the varieties bakers want, Stoner said. For the steamed buns and pork belly buns that are popular, hard red spring wheat is preferred. The imported grain is blended with domestic varieties.

Those bakers who prefer imported hard red spring wheat aren’t at liberty to buy as much as they want, Stoner said. There’s a quota intended to protect wheat production in China. Asking for more than what’s allowed is considered unpatriotic.

“The mills love our wheat in both China and Taiwan, but in terms of us asking for mills or bakers or anybody to speak to their government about getting more than the quota, they won’t do that. Their asking would be viewed as unpatriotic,” Stoner said. “China views wheat as a strategic defense.”

Trans-Pacific Partnership

There are other challenges to Montana farm products in the Asia Pacific — namely the 11-nation Trans-Pacific Partnership. The multi-nation trade agreement was initiated by the United States, but the agreement became politically unpopular in 2016, prompting President Trump to decline joining.

TPP has moved ahead without the United States, and participating nations will begin receiving favorable trade terms over the next several years. In Japan, where 80 percent of Montana wheat exports are sold, the United States will be at a $65 per metric ton disadvantage when TPP nations realize the full perks of their trade agreement.

Included in the lineup of TPP nations is Canada, which raises wheat varieties that compete directly with grain from the Northern Plains states of Montana and North Dakota.

“Right now we have approximately 50 percent market share in Japan, and our best estimate is that would drop to somewhere between 20 and 25 percent,” Stoner said.

Beef sales face similar trade disadvantages once TPP is fully phased in. Japan’s tariff on Australian beef will be 9 percent under TPP. The United States tariff will remain at 38 percent, according to the Center for Strategic and International Studies.

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