Tariffs Raise Cost of Grain Bins
Published: Friday, September 14, 2018
Raw materials are crucial to the manufacturers of equipment that farmers need in modern agriculture. When the Trump administration announced plans to impose a 25 percent tariff on steel imported from China last March, markets responded with volatility, sending manufacturers scrambling to purchase and inventory necessary product.
According to Justin Sternberg, project manager at Hamilton Distributing, the markets have calmed some since the tariffs were announced earlier this spring. The initial announcement sent vendors into panic as questions about product supply outnumbered answers.
"We haven't seen the drastic changes lately that we saw this spring, where we would quote a project and the price would only be good for 24 hours. Now, we can quote on a project and the price is good for two weeks," Sternberg said. "It was a scary feeling for a while in March and April, but it was more of a temporary panic."
Hamilton Distributing is in Allegan County and installs turnkey grain and livestock systems carrying the Sokup brand.
"I wouldn't call the situation drastic, but it is putting the pinch on farmers just a little more with commodity markets very low and with steel going up, even if it's just a little," Sternberg said.
John Tuttle, sales director for Brock Grain Systems, added that soybean growers are feeling extra pressure and have been hit hardest from tariffs. As the No. 1 supplier of soybeans to China, U.S. soybean producers are experiencing serious market disruptions.
"When this happens, the customer tends to pause and hold before making any construction or replacement decisions."
Overall, Sternberg says average price increases funneled to the customer has been about 10 percent. Bin prices have gone up between 4 to 6 percent while smaller lines like rebar, bolts and sky cable have gone up by 10 to 12 percent. Most products sold through Hamilton Distributing area are built from U.S. made steel.
According the June 2018 International Trade Administration report, China's primary steel export markets are South Korea, Vietnam and the Philippines. The U.S. is far down the list, ranking No. 21 among all countries that import Chinese steel. However, it is unknown how much Chinese steel is diverted and imported through another trading partner. When it comes to steel, U.S. business is a mere drop of China's export markets—less than half of 1 percent. A 25 percent tariff on a small amount of steel will have little impact to China's exports overall, according to John Phipps, Farm Journal columnist.
"I think in the bigger picture, even though the impact hasn't been huge up front, we could take it on the back end of this with soybean and corn tariffs if our local producers have a hard time getting rid of product or physically can't get rid of it; the last thing they will do is buy another bin," Sternberg said. "It takes some time for everyone down the chain to feel the ripple, and it could be up to two years before we really feel it."
Despite scheduling challenges resulting from the tariff problem, distributors continue to get product delivered to customer.
"There still seems to be a lot of activity in the markets which seems contradictory considering margins right now. People are still spending at a typical rate," Sternberg said.
One significant change Sternberg noticed is the shift in customer sentiment and an overall lack of good spirits or hope.
"There just is not a lot of good news out there," Sternberg added.
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