Soybean farmers across the Midwest are on the frontlines of a looming trade war between the U.S. and China. The first shots could be fired this week if negotiations fail.
Each country is prepared to impose $34 billion in tariffs on the other’s exports if no agreement is reached by the July 6 deadline.
“Soybean trade between the U.S. and China is the single largest trade flow in agriculture that we have today,” said Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri. “We are selling roughly 30 percent of all the soybeans that we grow in this country to China.”
China’s government announced it will retaliate against U.S. tariffs with a 25-percent tariff on soybean imports. The addition of that tax would make soybeans too expensive for Chinese importers and virtually block U.S. soybean exports to China.
“People are darned worried about it,” said C. Brooks Hurst, a soybean farmer in Tarkio, Missouri, and president of the Missouri Soybean Association.
While Washington and Beijing have been trading tariff threats since January, futures contracts for soybeans have been falling. Current prices on this year’s harvest are averaging 15 percent below production costs.
“When you’ve lost 15 percent off your price, you gotta understand, that’s like, all of our profit,” Hurst explained. “So all of us have gone from maybe a small profit in that field of soybeans we planted to now just basically hoping to break even. So, it’s serious.”
Losses really add up for farmers who plant two, three, four thousand acres of soybeans, according to Hurst. He says if they only get $75 a bushel and a maximum 50 bushels an acre, the bottom line takes a big hit. “It would not be very hard to find people with six-figure losses, including our farm. So, that gets your attention in a hurry.”
Early U.S. forecasts for a bigger soybean harvest and increases in exports had created some optimism among Missouri farmers who have experienced five years of declining incomes. But the threat of a trade war is dashing hopes and has exporters scrambling for other potential markets.
“We anticipate, if the tariffs go into place, you’ll see higher prices for soybeans in China, lower prices in this country, and then South Americans will pick up trade share in China,” said Westhoff. “We’ll pick up some markets that the South Americans will be leaving in order to satisfy the Chinese market.”
Westhoff’s reallocation scenario predicts China buying the bulk of soybeans produced in Brazil and Argentina. The two countries’ soybean production almost equals that of entire American exports, which would head to European, South American and Asian markets to take the place of exports from Brazil and Argentina.
These changes in the global supply chain include an ironic twist: American soybeans could end up in China via South America and avoid the tariffs.
“It would not surprise me to see our soybeans exported to Argentina," Hurt said, "because they have more processing plants there, and they need to buy more beans to sell to China."
The best possible scenario, of course, would be no tariffs — but Pat Westhoff is not optimistic.
“As the clock ticks and we get closer to July 6, the chance of there being a less disruptive outcome is getting less by the day. At least as of right now, it seems very likely these tariffs are going to be in place for at least a period of time.”
The Trump administration is reportedly working on a strategy to compensate farmers if the tariffs are put in place this week, but no details have been released.
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