Economic uncertainty continues to loom over the heads of Iowa farmers after China ceased all purchases of U.S. agricultural goods Aug. 6.
After a 12-month trade war with the United States, Beijing withdrew its interests in the United States agricultural sector in response to a 10% increase to already imposed tariffs enacted by President Donald Trump. These new tariffs were put in place following what the president had called “productive” trade talks with Beijing, sending shock waves through all markets. After the announcement, the DOW Jones drop nearly 300 points within 24 hours.
The Chinese decision affects all agricultural sectors in the U.S., but most proportionately that of soy. The Chinese share of imports from the U.S. accounted for nearly 50% until Aug. 6.
Appropriately, this decision may be more beneficial to the Chinese that would first be surmised. Due to massive casualties in the Chinese swine population due to African Swine fever, the Chinese demand for soy declined by close to 50%. Iowa farmers have felt the impact of this economic shift most significantly in the prices of soy, which have been on the decline since 2012, but began to drop abruptly, following the announcement. Prices over the last week have stagnated at, or just under, $8 a bushel.
“We have seen the affect for about twelve months,” said U.S. Senator Chuck Grassley. The price dropped from about $9 a bushel and now it has dropped down into $7 a bushel. It has recovered some, but it still hurt.”
Despite lower prices from lack of Chinese purchases, farmers may get some relief from, of all things, less than average yields. This would be due to planting delays caused by the extreme precipitation throughout the Midwest this spring. The later a crop is planted in the season, the lesser its yield potential is before harvest. With fewer bushels of beans in the market, farmers may be given some pricing relief in the months to come.
“I think this is going to be a wait and see until we get through harvest,” said Senator Tom Shipley. “The crop was way behind getting put in, so it will be way behind getting harvested. This has the makings of a perfect storm, and in a perfect storm nobody can predict where it’s going to hit and how hard.”
Regardless of a potential lapse in this year’s yields, the possibility remains that there will be a soybean surplus as farmers tend to plant extra crops, especially when prices are good. If a surplus exists, which is not currently projected by the USDA, prices will continue to stagnate or decline further. Some areas may benefit from a soy surplus such as bio-diesel, which could, for a time, become more economical while prices of its inputs lower.
“This will make producers think about next year about what we want to grow next year.” said District 8 Iowa Soybean Board Executive Director Warren Bachman. “Prices are depressed by about half of what they were seven years ago. Expenses just keep going up and the margins are awful small. If we keep producing more than we are using, most producers will be at a loss.”
Unless something is settled with China – or until the United States finds new markets – it can expect the continued depression or stagnation of soy prices. However, new markets have already been presented to U.S. soy producers. Many of the United States’ allies have pledged their support by purchasing U.S. agriculture.
The European Union doubled their soy imports from the U.S. in January and expects to increase this amount. Europe uses for soy are broad – from food production to bio-diesel, as well as asphalt for roads.
“Further deterioration is unlikely,” said Grassley. “China is out, other countries may buy in, but it is not a sure thing.”
Mexico, the second largest importer of U.S. farm products, was speculated by the Trump administration to increase their import of U.S. agricultural products in the face of tariffs; however, the Mexican share of the market has only seen a 2% increase so far.
The Philippines, in the wake of the trade war, have purchased soybeans from the U.S. for the first time in history – opening brand new trade opportunities that have not been options before.
These new prospects however do not come without their own difficulties. Grassley said that the U.S. has invested the better part of 50 years in developing a trade relationship with China. Now that the relationship has been broken, the U.S. has to look elsewhere, to some countries, with whom it has not developed such extensive relationships int he past and cultivate those for future sales.
“We thought we were at the 10-yard line in June, signing an agreement in Florida. Then suddenly, the Chinese back off to the 30-yard line,” said Grassley. “They don’t negotiate in good faith. But there is always hope if we are talking. We don’t know why they pulled out. It could be pressure on president Xi from his leadership that he is not being tough enough on Trump. It is hard to give a definitive answer.”
The prospects for negotiating a deal with the Chinese are uncertain as Beijing has become unreliable at the negotiating table and the president has historically not listened to the council of his advisors on multiple platforms. The loss of China as a long-time trade partner in American agriculture is a significant hit to American soybean producers.
The Trump administration has promised $14.8 billion in aid to U.S. farmers, which will be released in three phases. This aid is to make up for lost revenues due to the trade war and he has pledged continued support if an agreement cannot be reached.
“There is talk that the market facilitation may be extended,” said Bachman, “And the way things are now on the farm, we probably need all the help we can get, but we would rather be selling our beans than getting government help.”