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The U.S. Farm Belt is fighting to prevent an industry nightmare—the loss of its best customer for its biggest export.
The customer is China and the export is soybeans, the fruit of a sweeping effort by nearly every arm of U.S. agriculture to build a once-obscure crop into a blockbuster. Then last year, American soybean exports to China plunged 74% by volume. Brazil raced to fill the gap.
The U.S. Soybean Export Council is part of a cadre of industry leaders who are trying everything they can think of to save U.S. agriculture’s relationship with China. “You can’t produce another China, at least not overnight” said the chairman of the export council.
Mr. Trump first imposed tariffs on foreign steel and aluminum in the spring of 2018 in a move aimed especially at China, where overproduction had driven a global glut that hurt U.S. producers. Other measures followed, such as duties on Chinese goods ranging from seafood to handbags—an effort to remedy a trade imbalance and stop what the administration sees as unfair Chinese practices.
China hit back, affixing tariffs to various U.S. agricultural products. Twenty-five percent tariffs on American soybeans took effect in July 2018 and sent U.S. soybean prices falling. Farmers are pressing the administration to settle the dispute, pursuing direct channels to Chinese buyers and seeking to address those buyers’ complaints.
It has been four decades since American farmers first set their sights on China, which had committed itself to becoming self-sufficient in the production of certain grains, while setting no such goal for soybeans. The oilseeds, however, were growing in importance as China’s burgeoning middle class developed a taste for pork and poultry, fed partly with soybean meal. Before long, demand from China for soybeans was rising 10% a year.
Rushing to meet it, American farmers shifted millions of acres away from more traditional crops such as wheat. Acres planted to soybeans, a rarity in U.S. fields a century ago, increased 43% between 1995 and 2018 while wheat acreage fell 31%. Last year, U.S. farmers planted soybeans on more than 89 million acres, an area roughly the size of Montana.
Seed companies, grain traders, railroads and other businesses have all been part of the soybean-industry buildup—investing heavily, rolling out new varieties and adding rail capacity to ferry crops to market.
Monsanto created a large seed and herbicide business with a heavy focus on soybeans. DuPont Pioneer built dozens of soybean-focused research centers and seed-production facilities, said Paul Schickler, who as president helped develop the Iowa company’s soybean business over many years. The seed companies developed soybean varieties suited to a wider swath of climate and farmland, and the crop spread across states in the Great Plains.
Railroads expanded service from the upper Midwest to the Pacific Northwest’s ports, which in turn devoted hundreds of millions of dollars to boost farm-commodity shipments eastward. In the past five years, BNSF Railway Co. has invested over $6.1 billion in its northern corridor, adding or repairing more than 30,000 miles of track and replacing nine million railroad ties.
Before the U.S.-China trade dispute broke out, U.S. agricultural-firm executives who studied China’s rapid economic growth and shifting diet thought nothing would alter “the economic engine of China that was driving consumer demand”. Since the start of the tensions, soybean farmers and their industry leaders have traveled to Washington to urge the Trump administration to resolve the trade fight. They argue that farmers who have struggled with a long slump in income can’t withstand another year without access to their most important foreign market.
“We don’t want the next generation to be scared away from agriculture,” an Indiana farmer and a director of the American Soybean Association said. “Markets don’t just come back.”
Last fall China’s deputy agriculture minister said China would not easily forget the current standoff, and China is building alternatives for soybean imports so it will never again be so dependent on a single source. Brazil, which overtook the U.S. as the world’s biggest soybean exporter several years ago, stands to gain ground. The U.S. share of world soybean exports is expected to drop to 31% this season, the lowest on record, while Brazil’s portion is forecast to swell to 52%, which would be its largest ever.
At an agricultural forum in Beijing last fall China’s deputy agriculture minister said China would not easily forget the current standoff, and China is building alternatives for soybean imports so it will never again be so dependent on a single source. “It was just that black and white,” Mr. Schickler said. “China doesn’t care about this year or next year—they think in terms of centuries.” Brazil’s ambassador to China told the group his country was working to become China’s most reliable supplier.
American farmers have few easy options if Chinese demand for U.S. soybeans remains depressed. Robust world grain supplies suggest there is little need for additional U.S. corn or wheat production. Switching to a new crop would require huge investments in equipment and infrastructure, to say nothing of finding viable markets.
Restoring trade with China remains a critical goal for the export council. “We need to be looking for a way to get out of the mess we’re in” with China, said Mr. Adams, the former American Soybean Association president. In the trade fight, in his view, “We’re going to have to blink.”
President Trump: "Trade wars are good, and easy to win".
© 2015 Mutual Fund Observer. All rights reserved.
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