LUCAS Strom, who runs a century-old family farm in rural Illinois, cancelled an order to buy a new $71,000 grain storage bin last month — after the seller raised the price 5 per cent in a day.

The reason: steel prices jumped right after US President Donald Trump announced tariffs.

Throughout US farm country, where Trump has enjoyed strong support, tariffs on steel and aluminium imports are boosting costs for equipment and infrastructure and causing some farmers and agricultural firms to scrap purchases and expansion plans, according to interviews with farmers, manufacturers, construction firms and food shippers.

The impact of rising steel prices on agriculture illustrates the unintended and unpredictable consequences of aggressive protectionism in a global economy. And the blow comes as farmers fear a more direct hit from retaliatory tariffs threatened by China on crops such as sorghum and soybeans, the most valuable US agricultural export.

A&P Grain Systems in Maple Park, Illinois — the seller of the storage bin Strom wanted to buy with a neighbouring farmer — raised its price two days after Trump announced aluminium and steel tariffs on March 1 to protect US producers of the metals. Strom and his neighbour backed out.

“Would that price destroy us? No,” Strom said. “But these days, you have to be smart about your expenses.”

The metals tariffs also hitting makers and sellers of farm equipment, from smaller firms like A&P Grain to global giants such as Deere & Co and Caterpillar Inc. Such firms are struggling with whether and how to pass along their higher raw materials costs to farmers who are already reeling from low commodity prices amid a global grains glut.

The world’s two largest economies have threatened each other with tariffs on tens of billions of dollars of goods recent weeks.

Trump imposed tariffs of 25pc on steel and 10pc on aluminium in a move mainly aimed at curbing imports from China. He has since temporarily excluded the European Union and six other allies from the duties and given them until May 1 to negotiate permanent exemptions.

A&P Grain President Dave Altepeter said the steel used in their bins is made in the United States, but domestic steel prices also have soared because of the tariffs.

US steel mills typically adjust their prices once a year, normally in the first quarter, Altepeter said. But this year, those prices have jumped four times, he said.

The price of steel used in A&P’s grain bins has jumped about 20pc since Jan 1.

“Any time there’s any type of negative talk that affects the steel mill, they’ve raised the price,” said Altepeter.

Last year, about 95,000 tons of steel was shipped to the agriculture industry, compared to the 14 million tons for the US auto industry, according to the American Iron and Steel Institute, an industry group.

Other factors had been driving up steel prices before the recent trade disputes, including an improving global economy and accelerating manufacturing and construction, particularly in the US

The White House referred questions to the US Department of Agriculture, which did not respond to a request for comment. Trump and Agriculture Secretary Sonny Perdue have vowed the US government will protect farmers from China’s tariffs, but not explained how.

US farmers can ill-afford any loss of sales. Farm income has dropped by more than half since 2013, following years of massive harvests that have depressed prices for staples such as corn and soybeans.

Construction postponed

In Riverton, Illinois, farmer Allen Entwistle said he postponed construction of a new $800,000 storage system for grain after AGCO Corp’s GSI unit increased prices by 15pc.

Entwistle, who voted for Trump, will instead store corn in bags on the ground. “President Trump keeps telling us he’s going to get a better deal,” Entwistle said. “When are we gonna make it better?”

AGCO said Trump’s tariffs will raise its costs and make price hikes to customers unavoidable.

“As the entire grain storage industry has weathered increased steel prices, AGCO and GSI are constantly looking for new ways to maximise efficiency and minimise the impact to customers,” said spokeswoman Kelli Cook.

Other companies, including Deere and Caterpillar, are also facing pain from rising steel prices, which account for about 10pc of equipment manufacturers’ direct costs.

Deere CEO Samuel Allen said last month the company will have to absorb the price increase and cut costs elsewhere. China’s threatened tariffs on US crops could hurt the company even more by undermining demand from farmers, he said.

“This has a huge effect on livelihood of the farmer right now, and at the same time it has a huge impact on manufacturers,” said Dennis Slater, president at the Association of Equipment Manufacturers, an industry group.

US net farm income is forecast to drop to $59.5 billion in 2018 dollars, down from $64.9 billion in 2017, an 8.3pc decline, according to the USDA.—Reuters

Published in Dawn, The Business and Finance Weekly, April 16th, 2018