Trade dispute takes U.S. soybean market into crisis mode

According to September data from the USDA, soybean exports to China were down more than 2 million tons from the same time last year.

In a tit-for-tat tariff war with the United States, Chinese companies were ordered to start buying soybeans from other suppliers and U.S. exports to the country have dropped more than 90 percent.

“The issue comes down to simple math, with your average producer having more invested into their soybeans than they are worth on the market today,” said Ed Usset, grain marketing specialist and research fellow at the University of Minnesota.

According to the U of M’s extension crop budget for soybeans, last year’s cost per bushel to produce soybeans in southern Minnesota was $9.09 — a price point that farmers in the Midwest will not get at their local elevator.

Farmers are being forced to either take the hit financially and sell for current rates, or hold onto their beans until the market improves, if it ever does.

Josh Nelson, who farms with his uncles and cousin in Wright County, Iowa, in the town of Belmond, about 60 miles south of the Minnesota border, said they were lucky to finish their harvest just before Thanksgiving. They were also lucky to have a little more acres of corn — 4,600 — than soybeans — 2,600 —this year, and to be seed growers.

Nelson said they still sell their beans at market price, but are insulated by the additional premiums they can earn from being seed growers. Whether they get a full premium depends on how much faith Syngenta has in the variety they are selling, and if they think it will sell well next year.

“We are kind of beholden to the current market, and next year’s market for determining our premiums,” said Nelson.

Farmers who aren’t getting premiums have little choice but to store their beans and wait for better prices. Some farmers have resorted to storing soybeans inside of plastic-wrapped bunkers that keep moisture out, or giant plastic bags on their operations.

Short term, Usset said soybean growers will need to rely on payments from the White House’s $12 billion program to compensate them for the loss in trade. The program will amount to about 82 cents per bushel for farmers this year, which won’t be enough for most to break even. The USDA has reported that another 82 cents could be approved through the program next year if a trade agreement has yet to be reached.

“Most of them are holding onto (soybeans) in hopes there’s a resolution to this trade issue,” said Usset. “And with that resolution, we get back to shipping soybeans to China and everything goes back to the way it was.”

Usset is doubtful that will ever happen though, even if the U.S. and China are able to reach an agreement. Usset said the trade dispute gave China strong incentive to explore new options for buying soybeans, or scale back imports altogether.

“When you threaten someone with their food supply, which is what soybeans are, they think hard about alternatives,” Usset said. “We may kiss and makeup, short-term, and make it look like we’re getting back to normal, but China is already planning alternatives and adapting.”

The development of new markets for U.S. soybeans in countries like Egypt and Iran may make it seem like there are hidden markets still to be found, but Usset said it’s rather a perverse offshoot of the trade war. While China has transitioned to buying more soybeans from Argentina and Brazil, it’s cheapened the price of U.S. soybeans. This has led to some countries swooping in to take advantage.

The market for selling U.S. soybeans is depleted to the point where Usset thinks it resembles the 1980’s grain embargo to the former USSR.

“Trade wars like this have a very long tail to them,” said Usset. “The impacts are lasting.”

The effect of the grain embargo on the Soviet Union was minimal as they were able to receive grain from other sources such as Venezuela and Brazil. In the end, the embargo was a blessing in disguise for the Soviets because they were able to see that they didn’t need grain from the United States. Instead, they could cultivate their own in Ukraine and import from South America. Even today, U.S. grain exports to Russia are minimal.

Nelson doesn’t think the current situation is at 1980s grain embargo level yet, but he’s well-accustomed to hearing farmers make the comparisons.

“I was only a little kid at that time,” Nelson said of the 1980s embargo. “But I can see the scars working with my dad and uncles, because they live with them every day.”

The new year will bring people to the table, including bankers and lenders who will be getting together with farmers to discuss operating loans for 2019.

“There’s going to be all sorts of difficult conversations had,” said Usset. “And you can expect that soybean acres are going to decrease next year.”

He said farmers will transition to planting more acres of corn and wheat to maintain, and that he wouldn’t be surprised if 5 million less acres of soybeans were farmed next year. Some analysts are predicting 10 million acres.

Nelson said the general consensus in farm communities and state soybean associations have been “cautiously optimistic” of the trade relations with China. His personal opinion is that the current situation could have easily been avoided.

“It’s a self-inflicted wound — or to use a soccer analogy, an own-goal,” said Nelson of the trade dispute with China. “It’s inflicting pain and suffering on farm country, and it’s reverberating through the steel manufacturers who put up grain bins and those who sell to John Deere.”

Link to original article in Agrinews.