U.S. farm sector stockpiles Chinese chemicals before scheduled tariffs

Syngene International

29/11/2018 12:00

By Rod Nickel
    Nov 29 (Reuters) - U.S. 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 Jan. 1. 
    The additional tariffs, threatened by U.S. President Donald
Trump, are part of an eight-month trade war between the United
States and China affecting $250 billion worth of Chinese
products and $113 billion in U.S. goods.
    The duties could disrupt supply lines for U.S. companies
that sell chemicals and fertilizers, part of a $28-billion U.S.
farm chemical industry. The sector relies on Chinese imports for
40 percent of the ingredients and materials needed to make crop
chemicals, according to consultancy Informa.
    Nutrien Ltd  NTR.TO  - the biggest U.S. retailer of farm
supplies - is stockpiling enough chemicals to last into the busy
2019 planting season, the company said in a statement. Nutrien
is carrying $300 million 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 U.S. crops
including soybeans - effectively shutting off an export worth
$12 billion in 2017.
    The Trump Administration imposed 10 percent tariffs starting
Sept. 24 on about 5,700 Chinese exports, ranging from pork to
bicycle tires. The duties are scheduled to rise to 25 percent on
Jan. 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 Friday.
    Trump has lately sounded more hopeful of resolving divisions
with China, saying on Nov. 16 that higher tariffs may not be
needed.  urn:newsml:reuters.com:*:nL2N1XR135
    Small U.S. chemical-makers like 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.  urn:newsml:reuters.com:*:nL2N1WQ2DR
    "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
fertilizer purchases in the wake of tariffs, Coppock said.
    Farmers' costs for such supplies are a big part of that
equation: U.S. soy farmers spent $52 per acre applying chemicals
and fertilizer in 2017, or 12 percent of their total costs,
according to the U.S. Department of Agriculture.
        
    WINNERS AND LOSERS
    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 U.S. Trade
Representative's office. The spokesperson said the tariffs are
designed to discourage China's "market-distorting actions" and
defend the United States from unfair trade practices.
    The tariffs are having an uneven impact on chemical
companies. Bayer AG  BAYGn.DE , which makes glyphosate and
dicamba pesticides in the United States, is largely unaffected,
spokeswoman 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 United States 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 percent tariff may result in U.S. glyphosate prices
rising by 15 or 20 percent, he said.
    The tariffs would affect Syngenta  SYNN.NS , which imports
Chinese products for its crop protection formulations, said
spokesman Paul Minehart. The company is seeking alternate
sources, he said.
    BASF SE  BASFn.DE  is concerned about the tariffs but still
analyzing their potential impact, spokeswoman Odessa Hines said.
    Nutrien, the retailer that sells to farmers, has already
stockpiled chemicals including dicyandiamide (DCD), a fertilizer
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," Chief Executive
Chuck Magro said in an interview. "This will be something that
ultimately affects the farmer."
    
    PASSING ON COSTS
    Since the Trump administration applied 10 percent tariffs in
September, The Chemical Company, based in Rhode Island, has
raised its DCD chemical price about 8 percent, said general
sales manager AJ Petrarca.
    With 25 percent tariffs coming, the company ordered more
from Chinese manufacturers including Ningxia Jiafeng Chemicals
Co and Beilite, swelling inventories by about 10 percent 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.
    U.S. 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 U.S. market now," he
said.
    U.S. 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."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
INSIGHT-Trump trade war delivers farm boom in Brazil, gloom in
Iowa     urn:newsml:reuters.com:*:nL2N1WQ2DR
INSIGHT-Hog industry worldwide getting slaughtered in trade war 
   urn:newsml:reuters.com:*:nL2N1X704B
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Rod Nickel in Winnipeg, Manitoba; additional
reporting by Jason Lange in Washington and the Beijing newsroom
Editing by Brian Thevenot)
 ((rod.nickel@tr.com; 1-204-230-6043; Reuters Messaging:
Twitter: @RodNickel_Rtrs))