California Ag Network

Tag: Tariffs

  • Citrus Season Update

    Citrus growers in California are seeing an early bloom with unprecedented warm weather, and are experiencing challenges with tariffs and trade issues. However, the mood remains optimistic. Julia Inestroza, Board Chair for the California Mutual, spoke with Matthew Malcolm of California Ag Network to discuss the growing season at the California Citrus Showcase in Visalia. Watch this quick video and read more in California Fruit & Vegetable Magazine.

    Please thank this video’s sponsor Simplot for their industry support.

  • Impact of Tariffs on Wine Industry

    The wine industry continues to struggle with fewer buyers, while tariffs threaten to shrink the market further. A boycott by provincial governments in Canada is costing vineyards their second-most important wine market and some wineries are at risk of going out of business. At the Unified Wine & Grape Symposium, The Wine Economist editor Mike Veseth spoke with Matthew Malcolm of California Ag Network about the impact of tariffs on the American Wine Industry. Watch this quick video and learn more in American Vineyard Magazine.

  • Tariff Policy, Declining Immigration and Massive AI Investments Cloud US Economic Outlook

    Significant downward revisions to monthly payroll estimates in August led many market observers to anticipate the Federal Reserve would begin cutting interest rate cuts more aggressively. However, recent economic data has generally been positive, tempering expectations for more significant cuts before the end of the year.

    According to a new quarterly report from CoBank’s Knowledge Exchange, the most likely scenario is an additional four or five cuts of 25 basis points through 2026, leaving the overnight rate around 3.0% by the end of 2026. The actual outcome will depend heavily on how the economic data looks and how successful the White House is in influencing monetary policy.

    Tariff policy uncertainty, the sharp decline in immigration and the massive surge in AI investments have made interpreting traditional economic reports more difficult. The CoBank report suggests sharp swings in monthly import volumes, a flattening of working-age population growth and a soaring stock market make it difficult to gauge how “Main Street” America is doing economically.

    “The intense politicization of attitudes has rendered longstanding public sentiment surveys erratic and unhelpful in gauging actual economic conditions,” said Rob Fox, vice president of CoBank’s Knowledge Exchange. “The federal government shutdown and potential loss of scheduled economic reports will make it even more difficult for businesses to gauge the economy and make prudent business decisions.”

    Despite rising fears that the rapid adoption of AI will soften the labor market and dim job prospects for college graduates, Fox said there is little evidence to support those fears. “New technologies have always raised concerns about job losses. The recurring theme is job transformation, not elimination. This time isn’t any different. Today’s college graduates are already deeply familiar with AI and are using it to sharpen skills hiring managers value most.”

    U.S. Economy

    Personal consumption and unemployment rates, arguably the most important economic signals, have held steady in the face of ongoing uncertainty. However, other signs suggest the economy may be slowing. Personal income growth, adjusted for inflation, has fallen from 4% in early 2024 to about 2% today. Consumers have responded by dipping into savings to maintain their spending, which cannot be sustained indefinitely. While a potentially slowing economy and declining interest rates should put downward pressure on the dollar, the effect for U.S. agricultural exports has been muted. Row crop exports have not experienced the benefit of the weakening dollar relative to the currencies of America’s largest grain importers.

    U.S. Government

    The government shutdown and lack of congressional action are contributing to widespread political and economic uncertainty. With no more funds to support most federal programs or pay many public servants, the suspension of most revenue-generating capabilities are halted and will likely negatively impact the economy as time goes on. Meanwhile, the abundance of American agricultural commodities is no longer an asset but rather a liability for many U.S. farmers. Tariffs have ultimately shut out American commodities to many countries. The administration is expected to announce $10 billion-$15 billion in farm aid to struggling producers but that may be delayed because of the government shutdown.

    Grains, Farm Supply & Biofuels

    U.S. farmers are harvesting a record-large corn crop and the second-largest soybean crop in five years following the largest wheat harvest in five years. The supply abundance is welcomed news for grain elevators looking to capture bigger carries in the futures market. But the record grain crop will strain U.S. storage and transportation infrastructure. The demand outlook for U.S. grains remains clouded by geopolitical uncertainty. Corn and wheat sales enter the fourth quarter historically strong, but soybean sales are abysmal due to the lack of Chinese purchases. Low water levels on the Mississippi River threaten to slow grain and oilseed exports during the peak shipping season.

    Elevated crop input costs will further erode producer profitability during the current low commodity price cycle. Producers will likely reduce fall fertilizer applications and stall overall input purchases for 2026 due to higher prices. Tariffs are also driving up input costs. The average tariff on crop inputs imported to the U.S. has increased from 1% to nearly 12%, according to data published by North Dakota State University. Fertilizer prices remain the biggest headwind for producers. Farmers will be reassessing and potentially reducing their usage rates of nitrogen, phosphorus and potassium. If farmers shift more applications to the spring, high seasonal demand could lead to supply chain hiccups.

    Biofuel demand remains a silver lining for the crop side of the agricultural economy. But the delay in regulatory policy on renewable volume obligations and small refinery exemption reallocation are casting a cloud over future demand. The EPA is unlikely to finalize next year’s renewable volume obligations before 2026. Renewable diesel and biodiesel margins will stay in the red as producers work through the long transition from the Blenders Tax Credit to the 45Z Tax Credit. Ethanol producer margins should remain positive to close out the year, due to plentiful corn supplies and low prices for natural gas and corn.

    Animal Protein & Dairy

    Dollar sales of retail ground beef grew by double digits in August, up 13% year-over-year at $1.7 billion, according to Circana. While beef prices remain elevated on tight cattle supplies, persistent demand boosted overall sales, and volume kept pace. Domestic cattle prices rose throughout much of the third quarter, setting new records and boosting returns to ranchers, but complicating beef market dynamics otherwise. Beef packer margins struggled during the third quarter. Despite strong demand for beef, several factors are limiting production growth.

    A slimming U.S. hog herd served to lift market prices. Price rallies for lean hog futures and feeder pigs persisted over the summer, settling at 20% and 48% higher year-over-year, respectively, in late September. In August, farrow-to-finish profit margins reached $52.58 per head, the highest since June 2021, according to Iowa State University. Pork producers have now posted profits for 17 consecutive months. Export demand has slowed slightly compared to 2024, which was a record export year for U.S. pork. Mexico remains the largest buyer of U.S. pork.

    With beef prices hitting all-time highs, the U.S. broiler segment capitalized on the opportunity to provide consumers a value offering this summer. A strong focus on chicken at retail and foodservice boosted white meat values through August. The quick-service restaurant segment featured a multitude of chicken options focused on strips and new flavors. Softening white meat values during the remainder of the year are likely to crimp margins but will continue to position chicken as a competitive value offering in 2026. Broiler production is expected to remain elevated through the end of 2025.

    U.S. dairy farmers continue to enhance their revenue by producing calves destined for beef production. Beef’s contribution to the bottom line has moved from $1 to $4 per cwt. over the past four years. The U.S. dairy herd has climbed to its highest level in over 30 years, in part, to capitalize on revenue from beef-on-dairy calves. While milk production margins had been somewhat favorable, strong output in recent months significantly changed the price forecasts. Butterfat production is in overdrive and ample supplies have sent milk futures lower. Typically, that would prompt dairies to reduce production. But the combination of the lowest feed prices in five years and profit margins for beef may be a stronger signal.

    Cotton, Rice & Sugar

    Cotton prices remain depressed despite a smaller U.S. crop. A slowing global economy continues weighing on clothing and apparel sales, pushing cotton prices lower. U.S. cotton exports have languished amid the weakening economic outlook. Cumulative U.S. export commitments of upland cotton were down 18% year-over-year as of mid-September. The slouching export pace is a concern for U.S. cotton farmers, as 80% of the cotton crop is typically exported. USDA estimates the 2025/2026 cotton crop at 13.22 million 480 lb. bales, falling 8% year-over-year.

    Rice prices continue to suffer from downward global pressures. Ample global supplies of competitively priced rice have eroded U.S. export market share. U.S. rice export sales are down 26% year-over-year since India resumed rice exports in 2024. Increased export competition from South America into the key Western Hemisphere market has added to the global headwinds. Stronger sales of medium-grain rice to Japan and Korea have been a bright spot in U.S. rice trade. While U.S. tariffs on imported rice have offered some support to U.S. prices, global rice abundance threatens to hold prices at multi-year lows.

    Strong global sugar supplies have pulled prices lower just as the U.S. sugar beet and sugarcane harvest is underway. Total U.S. sugar production is expected to rise 1.8% year-over-year. The bigger U.S. crop arrives amid a global sugar crop that will be biggest in eight years. Major exporters including Brazil, Thailand and India have expanded production. The global abundance continues to anchor U.S. sugar prices, which fell to their lowest level in four years last quarter. However, biofuel policies in India may limit future sugar exports, putting a stronger floor under U.S. and world sugar prices.

    Food & Beverage

    Merger and acquisition activity in the food and beverage sector continues, as evidenced by marquee deals including Ferrero’s acquisition of WK Kellogg and Mars’ purchase of Kellanova. However, deconsolidation and divestures are becoming equally common. Unraveling the biggest deal of a decade ago, Kraft Heinz is splitting into two companies. The move reflects a growing trend toward deconsolidation as companies aim to focus their efforts more narrowly and increase their agility to address changing consumer needs. This trend will likely continue as consumer sentiment shifts toward more cost-effective, at-home meal solutions.

    Power & Digital Infrastructure

    The cost of electricity is becoming a chief economic concern for Americans as prices are rising twice as fast as inflation. While data centers’ enormous appetite for power is frequently assigned blame, the problem of rising electricity prices pre-dates data centers. The North American Electric Reliability Corporation has long warned of supply challenges. Large load growth customers such as data centers could be a catalyst for modernizing the U.S. electric grid, ultimately helping to lower rates for all customers. However, regulatory misalignment or the mis-apportionment of system costs could deter the beneficial load growth needed to temper electricity costs. The imperative for utilities is to insulate consumers from data center cost sharing.

    Historic investments continue pouring into data center and AI infrastructure development. Capital expenditures could approach $400 billion in 2025, up from $235 billion in 2024. Investments will surge even higher in 2026, with Oracle, Microsoft and Broadcom signaling continued growth in AI infrastructure. That momentum creates a unique opportunity for rural America, as data center developers and hyperscalers search for land and a clear path to power. But the road ahead is not without challenges. The looming supply-demand imbalance in U.S. energy markets could become a bottleneck for growth and increase the risk of critical AI training activities migrating overseas.

    Read The Quarterly. Each CoBank Quarterly provides updates and an outlook for the Macro Economy and U.S. Agricultural Markets; Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Cotton and Rice; Specialty Crops; Food & Beverage industries and Rural Infrastructure.

    About CoBank

    CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 78,000 farmers, ranchers and other rural borrowers in 23 states around the country. CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

  • What do Tariffs Mean for California Agriculture?

    Tariffs on foreign goods coming into the United States create both benefits and headaches for most American businesses. For agriculture, while there are some potential benefits, there are possibly more headaches.

    Tariffs, of course, have been used by countries for centuries to protect the health of existing and new industries, respond to unfair trade practices by trade partners (e.g., dumping, foreign government subsidized exports), and generate revenues.  In the U.S., tariffs date back nearly 240 years to the Tariff Act of 1789 in which President George Washington placed a 5% tax on all imports to generate revenue for our new republic and protect its domestic industries.  So, the United States has used tariffs for a long time by both Democratic and Republication administrations.

    On the positive side, tariffs protect California agriculture from imports that can be produced at lower costs and with less regulation.   This is especially the case for growers when bringing their commodities to market during harvest seasons and facing imports at lower price points in retail markets.  During the off-seasons, the benefits of import tariffs are somewhat less.  And in some cases, imported commodities actually serve as “placeholders” to meet retailer needs and consumer demand when those California commodities are not as readily available.  If those imports weren’t available, retailers will give that shelf space to other types of commodities and consumers would make other choices—hopefully only temporarily, but always facing the risk that consumption patterns will change permanently.

    Tariffs also can be a headache—perhaps, more like a migraine in many cases.  There are three main problems with tariffs from a business perspective in agriculture.

    First, because tariffs can be turned on and off very quickly, sales increases resulting from higher prices on imports are likely to be short-term.  The tariffs may stay in place for a while—or, they may not.  Generally, most growers shouldn’t make major commitments to expanding acreage and/or make crop changes unless it truly appears that the market opportunities created by tariff policies will be maintained for at least six months to one year, and possibly five to seven years, depending on the commodity.   

    For most growers, expansion is a slow and costly process because it takes time to acquire and prepare the land, and for plantings to yield significant production.  In California, for example, growers of tree nuts, berries, non-citrus fruit, and wine grapes have wisely demonstrated a conservative approach to expansion–their combined bearing acreage increased by 2.1% per year from 2020 through 2023.   And, ten of the twenty specific commodities studied in these groups actually reduced the number of bearing acres during this time period.

    Second, tariffs frequently result in reciprocal tariffs which may or may not be on like products.  So, grower gains in the American market may be mitigated by losses in foreign markets.

    For instance, in April 2018, China increased its “most favored nation” tariffs on selected agricultural products by approximately 15% in retaliation to U.S. tariffs on aluminum and steel.   Examples of the China’s tariff increases were:

    In this case, the agricultural products gained nothing from the U.S. tariffs, and the value of California’s agricultural exports to China declined by about $339.0 million from 2017 to 2019.  It is unknown whether the decline in exports to China was solely due to China’s tariff increase.  However, it certainly had to be a causal factor since the value of exports to China had been increasing over the prior three year period (i.e., 2015 through 2017) and there is no reason to believe that overall growth trends in dollar value would reverse themselves so suddenly and significantly in 2019.  The total export value declined 14.9% in 2019 compared to 2017.

    Based on the total value of California’s agricultural exports to China declining from 2017 to 2019 by $339.0 million, and given an average 15.0% increase in retaliatory tariffs, this equates to a decline of approximately $23.3 million in export value per 1.0% tariff increase in today’s dollars.  While the relationship between tariffs and export sales may not be perfectly linear, the decline is still going to be significant.

    Applying that experience to current times, China increased its tariffs from approximately 21.1% at the end of 2024 to 125.0% in April 2025.  If the ratio of approximately $23.3 million decline per 1.0% increase in tariffs in the 2018 scenario were applied to 2025, the decline in value of California agricultural exports would be approximately $2.3 billion.

    Third, tariffs and the resulting reciprocal tariffs present a “double whammy” for growers in that they not only shrink export markets but they simultaneously increase their operating costs.  Tariffs placed on imports will raise the costs of equipment, equipment maintenance, farm supplies, etc., and reciprocal tariffs will drive down sales in foreign countries.    

    A 10% increase in just some operating costs resulting from import tariffs on raw materials and parts on such items as  feed, chemicals, fuel, farm equipment and maintenance, etc. will increase total operating costs by 4.1% for an average California farm.  A 25% increase in these costs will raise total operating costs by 10.2%.  And, a 50% increase in these costs due to import tariffs will raise total operating costs by 20.5%.  In effect, average operating costs could rise by $30,000 to $140,000 per year for an average California farm depending on the size of the tariff and grower purchases. For an average size farm in California (about 328 acres), operating costs could rise anywhere from $90 to $500 per acre per year depending on the tariff.

    Having to deal with one of these issues would be bad enough, but dealing with all three definitely moves the needle from headache to migraine.

    The likelihood, of course, is that the current Administration and foreign governments will find ways to step back from the cliffs rather than jumping off.  While nobody will admit to blinking first, ways will be found to both save face and avoid a full-fledged trade war that lasts any meaningful amount of time.  But, sooner or later, these threats of trade wars are likely to turn into a reality even if on something less than a catastrophic scale.

    So, what can California’s agricultural industry do in these turbulent times of “on again,” “off again,” tariff threats?  Several things.  First, start taking steps to reduce vulnerability to higher costs and lower export sales because these situations are likely to arise again.

    For growers, control what you can control.  Becoming as cost-efficient as possible is always a good business strategy, but it is essential to survival during these tariff-induced turbulent times.  Every dollar saved reduces grower vulnerability. Lower operating costs help mitigate any lost revenues from reciprocal tariffs and gives growers options for shifting to alternative markets that might require selling at lower price points to avoid a buildup of inventory or straight crop loss.   

    For the industry, expanding the domestic market to the fullest extent possible helps reduce reliance on export sales.  For most commodities, there are only so many apples, cherries, grapes, almonds, etc. that an individual will eat in a given time period.  So, look for new uses, new users, or both in the American marketplace.  The odds are that there are some opportunities to expand domestic sales.

    Additionally, the industry should seek to solidify a “brand preference” for California-grown agricultural products in foreign markets.  Doing so can help make consumers in foreign markets less sensitive to price increases for California agriculture, thereby reducing the impact of reciprocal tariffs.  Although virtually nothing will help if reciprocal tariffs reach astronomical levels, foreign buyers who prefer California-grown commodities will probably pay some premium during moderate trade wars.  Industry efforts to cultivate foreign markets for the California brand requires considerable promotional/marketing efforts, but are likely to yield benefits during normal as wellas moderately turbulent times. — By Dennis H. Tootelian

    Dr. Dennis H. Tootelian is the founder of The Tootelian Company, a Sacramento, California-based marketing and management consulting company. He is an Emeritus Professor of Marketing, California State University, Sacramento.

  • Farmers Concerned About Potential New Tariffs

    Sacramento, Calif., (April 5, 2018) – China has threatened to impose retaliatory tariffs on American exports following President Trump’s plan to impose tariffs on steel and aluminum imports. Agricultural exports are in the crosshairs, reported Thaddeus Miller in the Merced Sun-Star.

    China’s tariffs would first hit U.S. products such as avocados and nuts with 15 percent duties, the article says.

    “It doesn’t really matter which one it is, whether it’s alfalfa, almonds or wherever it may go,” said David Doll, UC Cooperative Extension advisor in Merced County. “They’re as much political as they are anything else.”

    The potential tariff would have a significant impact on Merced County, where almonds are the second largest commodity valued at $578.5 million in 2016.

    The back and forth trade disputes happening between the U.S. and China make trade less predictable and could lead to disruptions that impact California food and wine producers, even before potential Chinese tariffs go into effect, said Dan Sumner, director of UC Agriculture and Natural Resources’ Agricultural Issues Center in an interview with Julia Mitric of Capital Public Radio.

    If China hits the U.S. with a 15 percent tariff on wine, that’s a problem, Sumner said.

    “We may think California wine is special, but not everybody does,” Sumner said. “And if it’s 15 percent more expensive than it used to be because of the tariff, there’ll be a substantial reduction in how much gets sold in China.”

    Sumner said the proposed tariffs would likely hurt California’s tree nut growers more than its wine producers because a larger proportion of almonds and pistachios are exported.

    In 2016, the value of pistachios sold to China was $530 million, more than three times the value of wine exports to that country, Mitric reported.