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Why Colorado’s corn farmers are getting hurt by China’s soybean tariff

Colorado’s not a big soybean state but indirect impact of trade wars has hit agriculture exports, which are down 15% this year

Colorado corn farmers got their crop planted before growers in the Midwest this year, and commodity prices went up a bit. But the trade war with China has left agriculture operations all over the U.S. sitting on a surplus of corn, soybeans and wheat. (Dana Coffield, The Colorado Sun)
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When China added a 25% tax on soybeans in retaliation to U.S. tariffs last year, Colorado’s farming community shrugged it off. Soybeans aren’t much of a crop here.

But nationwide, large patches of Midwestern soybean farmland switched to corn. That, in turn, meant more corn would stay in the U.S., driving down prices for Yuma County farmers like Jeremy Fix. 

“Right now, commodity prices whether it be corn, wheat, soybeans, they’re all low,” said Fix, who kept to planting corn and wheat at his Aggie Farms in Wray. “And a lot of people, including me, are in a pinch right now. They can produce a lot of it. But it takes a lot of it to just cover our costs.”

For more than a decade, the state has seen an amazing growth in agriculture exports with the value of Colorado-grown food heading out of the country increasing to $2 billion last year. Agricultural exports have grown nearly every year in the past decade. But this year, they’re down 15%, according to the state’s Department of Agriculture. 

The decline is being watched by state legislators who are concerned about the impact on business confidence and the state economy. In the latest Economic & Revenue forecast report, Colorado exports overall in the first seven months this year were down 6.4% from the same period of 2018. Hardest hit are food and agriculture products including corn (-44.5%), wheat (-56%), cheese (-75.9%) and whiskey (-79.8%).

“There’s not a lot the state can do (on federal trade wars), but it’s having a huge impact on the state budget,” said Rep. Chris Hansen, D-Denver. “It’s the domino effect.”

China’s tariffs on steel mean the state’s department of transportation is paying more for the rebar used to build roads. Tariffs on clothing, cars and smartphones mean consumers will pay more for those goods, so the cost of living goes up. 

“This is a massive tax on the economy, and it has a material impact on the state budget,” Hansen said. “That’s why I’ve tried to highlight it at budget meetings and make sure the team is peeling the layers of the onion back.”

The trade war with China is centered on protecting U.S. intellectual property. That’s why the Trump administration started in April 2019 with tariffs on steel and aluminum so we’re less reliant on China. But it’s been a tit-for-tat tax battle ever since, with China increasing its tax on soybeans and pork a few months later. The latest round of U.S. tariffs would hit consumer items like Chinese-made baby clothing, sleeping bags and smartphones. China shot back with tariffs on cars and automobile parts.

MORE: It’s not just China: The United States’ global trade war has Colorado companies seeking — and finding — workarounds

But this year’s decline in agricultural exports isn’t blamed entirely on China — the destination of about 5% of Colorado’s agriculture exports in 2018. Most of the state’s exports head to Mexico and Canada, two countries with which the U.S. is on the verge of wrapping up a new trade agreement, pending a vote by Congress. Another trade agreement with Japan that would reduce tariffs on U.S. beef is also in the works. 

“Over the last 14 to 15 years, we’ve gone from about $500 million to $2 billion,” said Tom Lipetzky, the Colorado Department of Agriculture’s Director, Marketing Programs & Strategic Initiatives. “So we’ve really quadrupled in the last 14 or 15 years. But trade does have its ups and downs. And unfortunately, right now, we’ve got some uncertainty with all these trade negotiations.”

There are other reasons for ag’s decline this year, he added. Hides and skins are down 38.4% as consumers prefer synthetic leather to leather goods. Beverages, like bottled water and beer, are down 66.8%, partly due to European Union tariffs. Beef is doing a bit better, down 4.8% in the first seven months, according to data from the state department of agriculture. That’s attributed to a free trade agreement with Korea in 2012; the state’s top beef export market is Korea

“We’re seeing Korea for the first six months to seven months of the year up 20 to 25%” in beef exports, Lipetzky said. “We’ve got one market out there, Korea, that’s just doing really, really well and I think really exemplifies what can be done with effective trade policy.”

More: South Korea, home of Hanwoo and bulgogi, is now largest importer of Colorado beef

The trade war from the ears of corn

Colorado may not be the nation’s largest producer of corn, but corn is the state’s largest grain crop, said Kim Reddin, with the Colorado Corn Administrative Committee, the non-profit organization that promotes all things corn. (Did you know corn is used in crayons, drywall and hand soap?) 

Some of Colorado’s corn gets exported to Mexico and Canada. But a lot stays here to feed cattle, pigs, chickens and other livestock. While trade disputes may seem far from home, the trickle-down effect is having greater consequences on local farmers.

“Anytime the supply of corn is limited from being traded anywhere, it stockpiles,” Redden said. “If you can’t move the crop, you get surplus that’s not going anywhere and the price goes down.”

Last year, U.S. farmers planted about 89 million acres of corn and 89 million acres of soybeans, according to the U.S. Department of Agriculture.  Both crops were at near record highs for production. 

Then the China tax on soybeans was announced.

This year, farmers planted about 77 million acres of soybeans, one of the lowest amounts in eight years, and 90 million acres of corn. 

Incidentally, a wet spring in the Midwest caused corn farmers to delay planting until June so the size of the crop was much less than it could have been, said Todd Hultman, lead analyst for DTN Progressive Farmer, which tracks the business of agriculture. About 14 million acres were planted after mid-June.

“That’s how tough it was to plant corn this year,” Hultman said. “Had we had a decent spring, we could have easily seen 95 million acres of corn planted and maybe 77 million to 80 million acres of soybeans.”

The decision to focus on corn was because of the lower prices forecast due to China tariffs on soybeans.

Colorado corn farmers, however, got a break in the spring. In Yuma County, where the top crop is corn and it is mostly used as cattle feed, spring was relatively dry so farmers got seeds in the ground early on (“It was a little cold so it was scary for a lot of people,” Fix said). In the corn belt, farmers in Iowa and Illinois had to wait until June because of the wet weather. That kept corn prices a bit higher than anticipated. 

Colorado corn farmers got their crop planted before growers in the Midwest this year, and commodity prices went up a bit. But the trade war with China has left agriculture operations all over the U.S. sitting on a surplus of corn, soybeans and wheat. (Dana Coffield, The Colorado Sun)

“In Colorado, we were lucky. We were cold, but we were dry. We were able to get our corn in and so we saw corn prices go up quite a bit in the spring,” Fix said. “And then they went back down.”

Corn, wheat and soybean production was down by 14 million acres nationwide this year. Better weather next year might mean a bumper crop, but it could have dire consequences if the trade wars aren’t resolved. 

In September, China said it would waive retaliatory tariffs on some importers of pork and soybeans. Hultman says that’s because African swine fever had wiped out a third of China’s pork herd and the country has nearly tapped out of its soybean supplier, Brazil. China needs the U.S.’s supply. But with no resolution to the China trade war, farmers are in an unpredictable spot for next season.

“And without some kind of trade hope of China buying our soybeans, my real concern is that we’re going to have, I think, it’s no exaggeration to say that we could have 100 million acres or more of corn planted in the 2020 season,” he said. “And that would be very bearish for the supply outlook for corn. Very tough on prices.”

Imports and exports still down, but state sees some improvement

In February, Colorado’s exports sunk to their lowest volume in three years, down 24%. Import volume declined 27% between July 2018 and February. Both imports and exports, however, saw some year-to-date improvement by August, with a lower 4.9% decline from the prior August, while imports were down 5.5%, according to the state’s Office of Economic Development and International Trade. 

At least overall volume is not in decline anymore, said Daniel Salvetti, OEDIT’s manager of strategy and analytics, global business development. 

“One very obvious reason is that trade has seasonal flows,” Salvetti said in an email. “Volumes in the U.S. typically drop from October to February, likely in response to the holidays and colder weather. It is important to note that this downward period began, for the state, several months earlier than normal (March for exports and July for imports) and that the last time the seasonal decline was so severe was following the global collapse of oil prices in late 2014 and 2015.”

Overall, Colorado trades mostly with Canada and Mexico, which combined made up 32% of the state’s exports and 40% of imports. China makes up about 7% of the state’s exports and 15% of imports, making China the state’s second import source, he said. 

Trade agreements with all three countries have been “insecure, changing, and until May 2019, bogged down by tariffs from both sides,” Salvetti added. 

However, in May, renewed negotiations a new North American trade agreement ultimately ended U.S.’s threatened 5% tariffs on Mexican imports. 

“All of this is to say that the biggest threat from the (Trump) administration’s actions on trade are not the tariffs themselves, but the uncertainty created by the US shifting towards an adversarial and unpredictable stance on foreign policy,” he wrote.

Waiting on resolution, state searches for new partners

Colorado officials meanwhile have been searching for new trade partners not involved with U.S. trade disputes. Lipetzky, with the state’s Ag Department, said members of the agency’s marketing team was just at the American Food and Beverage Show in Miami, which had buyers from the Caribbean and Central and South America. 

“There were buyers last year from 118 countries that bought Colorado products,” he said. “So there are a lot of buyers out there very familiar with Colorado product and buying those. We’re just trying to work with some of those next-level markets, where we’re not having these big disputes, and see if we can’t grow some of those and (let) policy play itself out here. We want to keep that momentum and find new markets for new products and have new companies reaching out into that international marketplace.”

Colorado farmers would also benefit if Congress passes the new trade agreements with Japan, Mexico and Canada. The agreements, which include intellectual property protections, are now awaiting approval from Congress. 

“It’s really just that uncertainty … that’s keeping buyers on the sidelines right now,” Lipetzky said. “If we can kind of get all these agreements behind us, ag could be in a really good trade position going forward.”

MORE: Colorado companies struggle in search for exclusions to Trump’s tit-for-tat tariff war with China

This story was updated at 9:45 a.m. on October 7, 2019 with comments and data from the state’s Office of Economic Development and International Trade.


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