USA soybean farmers count the cost of the trade war with China
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Between September and December, soybean volumes shipped through Cargill’s river terminals in Louisiana are down 40 percent year on year.
After US President Donald Trump imposed new tariffs on Chinese goods, Beijing punched back with duties on US exports including most of its $20bn in agricultural commodity sales.
Soybean exports, worth $12bn in 2017, were hit hardest. The oilseed’s conquest of farm fields in the past 20 years has largely been down to US farmers gambling on China’s demand for protein to nourish pigs and chickens.
Beijing raised tariffs on soybeans by 25 percentage points in July, pricing the US crop out of the world’s largest market and making it a symbol of deteriorating bilateral relations.
Hopes rose in the US farm belt after Mr Trump and President Xi Jinping of China met in Buenos Aires towards the end of last year and agreed not to escalate their dispute for 90 days, a period that ends on March 2. Beijing has in recent weeks purchased a few million tonnes of soybeans for its government reserve, in a sign of goodwill.
Yet the market is sceptical about the possibility of a permanent detente
“The reality is that we’re in the early stages of a new cold war,” says Jan Lambregts, global head of financial markets research at Rabobank, a lender to the food and agriculture sector. “China has thrown down the gauntlet: they want to be number one. The US has responded saying that’s not going to happen . . . Within that context, there is no way I can see a lasting deal.”
Even if Beijing and Washington make peace, the effects of the 2018 soybean showdown will endure. Market veterans recall how a 1973 US embargo on soybean exports sparked Brazil’s ascent as a major player in the sector. “Once you are branded with the scarlet letter of being an unreliable supplier, it is hard to completely regain those lost sales,” says Scott Irwin, a University of Illinois agricultural economist.
Even if Beijing and Washington make peace, the effects of the 2018 soybean showdown will endure. Market veterans recall how a 1973 US embargo on soybean exports sparked Brazil’s ascent as a major player in the sector.
“Once you are branded with the scarlet letter of being an unreliable supplier, it is hard to completely regain those lost sales,” says Scott Irwin, a University of Illinois agricultural economist.
For the year up to September 30, 2018 China imported 94m tonnes of soybeans, more than a third of it from the US. For the year that began on October 1, US government economists forecast China will import 90m tonnes, the first decline in 15 years.
From September 1 to mid-December US exports of soybeans to China had amounted to just 341,000 tonnes, compared with 18m tonnes in the same period of 2017, US agriculture department data show. Meanwhile, US farmers have hauled in what is estimated to be a record 125m-tonne crop.
Last summer China ended duties on soybeans and rapeseed — another protein-rich oilseed — from five Asian countries including India. It later reopened its market to Indian-crushed rapeseed meal, dismissing earlier quibbles about its quality. President Vladimir Putin has said he wants to sell more soybeans to China, and in November a queue several kilometres long formed at Russia’s easternmost border crossings as a “massive supply of soy” made its way through, according to local reports cited by AgriCensus, a price reporting agency.
The biggest winner of the trade war so far has been Brazil, as China snapped up its previous crop. Gross profit margins for farmers exceeded 50 per cent in Mato Grosso state, compared with a historical average of 30 per cent, according to Guilherme Bellotti, senior agribusiness analyst at Itaú BBA bank in São Paulo. Land planted with soybeans this year is expected to reach a record 36m hectares, adding pressure to convert more forests into cropland.
The Trump administration’s response has been to introduce a $US12 billion ($16.8b) bailout scheme that includes government purchases of surplus foods, campaigns to identify new markets for crops and direct payments to farmers. soybeans have the biggest allocation, with $7.3b of the total authorised for payment. Mr Glaser calls it “Trump money”.
US farmers built up cash buffers during the commodities boom that ended earlier in the decade, but economic strains are building. In states of the upper Midwest — prime soybean, corn, wheat and dairy country — banks are contending with rising levels of bad agricultural loans on their books, according to the Federal Reserve Bank of Minneapolis.
By Gregory Meyer