The Trump trade sanction volley continues this week after China responded to the first round of tariffs with trade sanctions of its own. In reaction, the Trump trade team has generated a very large list of products that will be part of the next round of tariffs if an agreement cannot be reached between the U.S. and China. The exhaustive list includes thousands of items and products from door peep holes to cotton to vacuum cleaners. (click here to view the full list)
Of interest to us, a very inclusive list of fertilizers is included with the host of products which are now being threatened with 10% tariffs.
- Anhydrous ammonia
- Aqueous ammonia
- Triammonium phosphate
- Diamonnium phosphate
- Monoammonium phosphate
- Super phosphates of any kind
- Ammonium nitrate
- Various sulphur products
- Distillate and residual fuel oils
- Liquefied natural gas
- Liquefied propane
There is also an acronym attached to many of the items on the list... "nesoi", which stands for "not elsewhere specified or included." This is a bit of a catch-all and is used, for example in referencing, "mineral or chemical fertilizers nesoi containing the three fertilizing elements nitrogen, phosphorus and potassium." It is unclear whether an agreement can be reached before the items on the new list are subject to tariffs, and we can be certain that China will surely retaliate.
It is also unclear how much impact 10% tariffs on fertilizers and farm fuels will have on retail prices. Higher import prices will be passed on to the end user and, if implemented, the tariffs will most dramatically impact urea and phosphate prices. But tariffs may also bring some curtailed North American phosphate back online, which would likely do little more than hold retail prices very close that where they are now.
Urea has embarked on a downside correction after Chinese producers curtailed production for a few months. A resurgence of Chinese urea exports coupled with increasing U.S. production should keep the pressure on urea. If Chinese urea exports are slapped with tariffs, it will be up to U.S. producers to moderate retail prices here in the states. Strength in urea will contribute to support for UAN prices. In that event, it will be up to anhydrous to moderate retail UAN prices.
Potash prices will be the least impacted as China exports very little. Any supply shortages could be moderated by increased export activity out of Belarus. Shortages could also bring stalled North American potash production back online, but since those production curtailments were in response to dwindling returns on vitamin K, it is unlikely they would produce into a downtrending market.
So while this second round of tariffs has yet to be implemented, and it could easily be argued that the sheer volume of products and $200 billion price tag may be enough to force China to blink. In that event, grain prices, particularly soybeans and hogs, would garner support quickly. Even if fertilizers firm alongside grains, affordability would increase production margins would widen. If the second round of tariffs is implemented, there will likely be a price response, but there are many sources from which the United States could import fertilizer should the need arise. Either way, we may see the unraveling of China's stranglehold on nitrogen and phosphate prices.