US farming sector stockpiles Chinese chemicals before new tariffs hike
Additional charges, threatened by Trump, come into effect in January as part of an eight-month trade war between the two countries
US agriculture suppliers are stockpiling the Chinese chemicals that farmers need to kill crop pests and boost yields — before tariffs on them more than double on January 1.
The additional tariffs, threatened by US President Donald Trump, are part of an eight-month trade war between the US and China affecting $250bn in Chinese products and $113bn in US goods.
The duties could disrupt supply lines for US companies that sell chemicals and fertilisers, part of a $28bn US farm chemical industry. The sector relies on Chinese imports for 40% of the ingredients and materials needed to make crop chemicals, according to consultancy Informa.
Nutrien, the biggest US retailer of farm supplies, is stockpiling enough chemicals to last into the busy 2019 planting season, the company said. Nutrien is carrying $300m more in chemical inventory than it had a year earlier.
Other distributors are doing the same, said Daren Coppock, CEO of the Agricultural Retailers Association. Those who have the means to stock up will do so, he said.
Higher tariffs on farm chemicals would deal another blow to an agricultural industry that has already seen prices for staple crops plummet because of the trade war between the world’s two largest economies. China has imposed import taxes on US crops including soybeans, effectively shutting off an export worth $12bn in 2017.
The Trump administration imposed 10% tariffs starting September 24 on about 5,700 Chinese exports, ranging from pork to bicycle tyres. The duties are scheduled to rise to 25% on January 1, and the potential economic damage adds urgency to a meeting expected between Trump and Chinese President Xi Jinping at the G20 summit in Argentina that starts on Friday.
Trump has lately sounded more hopeful of resolving divisions with China, saying on November 16 that higher tariffs may not be needed.
Small US chemical-makers such as Willowood USA and Albaugh, however, say they have already raised prices to account for a continued standoff.
The prospect of higher pesticide costs on top of weak crop prices is “worrisome”, said Joe Ericson, president of the North Dakota Soybean Growers Association. The state’s farmers depend on China to buy soybeans, but the oilseeds have piled up in elevators — storage facilities that buy from farmers — as the world’s biggest buyer has instead turned to countries such as Brazil.
“We’re hit probably more than anybody with the Chinese tariffs,” Ericson said. “That’s a big blow to our economy when the elevators can’t get rid of them.”
Retailers have seen farmers cutting back on chemical and fertiliser purchases in the wake of tariffs, Coppock said.
Farmers’ costs for such supplies are a big part of that equation: US soy farmers spent $52 per acre applying chemicals and fertilizer in 2017, or 12% of their total costs, according to the US Department of Agriculture.
Most chemicals formulated in China — including those containing the widely used weed-killers glyphosate, dicamba and 2,4-D — have incurred new tariffs since September, along with some chemical ingredients, said Sanjiv Rana, editor-in-chief of the crop protection news service Agrow, part of Informa.
The same products hit by tariffs in September will see even higher duties in January, said a spokesperson for the US Trade Representative’s office. The spokesperson said the tariffs are designed to discourage China’s “market-distorting actions” and defend the US from unfair trade practices.
The tariffs are having an uneven impact on chemical companies. Bayer AG, which makes glyphosate and dicamba pesticides in the US, is largely unaffected, spokesperson Christi Dixon said.
Tariffs do apply to glyphosate formulations made by Chinese companies, however. They directly benefit Bayer if the prices of the Chinese products exported to the US rise because the firm sells glyphosate branded as Roundup at a premium over generic brands from China, said Jonas Oxgaard, analyst at Bernstein.
A 25% tariff may result in US glyphosate prices rising 15% or 20%, he said.
The tariffs would affect Syngenta, which imports Chinese products for its crop protection formulations, said spokesperson Paul Minehart. The company is seeking alternate sources, he said.
BASF is concerned about the tariffs but still analysing their potential impact, spokesperson Odessa Hines said.
Nutrien, the retailer that sells to farmers, has already stockpiled chemicals including dicyandiamide (DCD), a fertiliser ingredient made almost exclusively in China.
“If the tariffs do come in, you’re going to have higher costs for most of the major agri-chemicals,” CEO Chuck Magro said. “This will be something that ultimately affects the farmer.”
Since the Trump administration applied 10% tariffs in September, The Chemical Company, based in Rhode Island, has raised its DCD chemical price about 8%, said general sales manager AJ Petrarca.
With 25% tariffs coming, the company ordered more from Chinese manufacturers including Ningxia Jiafeng Chemicals and Beilite, swelling inventories by about 10% over normal levels, he said.
Those stockpiles may only last until February or March, however.
“I don’t think we’ll have enough to keep everybody whole throughout the season,” Petrarca said.
US customers, not Beilite, will absorb the tariff cost, said the Chinese company’s export manager, who gave his surname as Wang.
“It is not good to do business in the US market now,” he said.
US chemical-maker Willowood has little choice but to pass higher costs of buying Chinese chemicals on to retailers who sell to farmers.
“There’s not enough margin to eat that difference,” said Joe Middione, Willowood’s strategic business manager. “We’re seeing fairly significant increases across the portfolio.”
December is typically a brisk sales period, when farmers stock up before a new tax year.
“It’s caused a lot of confusion,” Middione said. Farmers, he said, are “shell-shocked”.