The ag industry was currently facing a soft farm market and already-declining prices, and now it faces China’s retaliation against President Trump’s 25% tariffs on $34 billion worth of Chinese goods, which took effect at midnight on July 6.
Soybean farmers, whose crop represents 41% of the value of products on China’s tariff list, will feel the full effect.
According to the American Soybean Association, the value of U.S. soybean exports to China has grown 26-fold in 10 years, from $414 million in 1996 to $14 billion in 2017. Since talk of the tariffs began back in March, U.S. soy prices have dropped more than $2.00 per bushel.
“Soybeans are the top agriculture export for the United States, and China is the top market for purchasing those exports,” says John Heisdorffer, a soybean grower from Keota, IA, and president of the ASA. “The math is simple. You tax soybean exports at 25% and you have serious damage to U.S. farmers.”
Soy growers rely heavily on exports to China: in 2017, China imported 31% of U.S. production, equal to 60% of total U.S exports and nearly 1 in every 3 rows of harvested beans.
Over the next 10 years, Chinese demand for soybeans is expected to account for most of the growth in global soybean trade, which underscores the importance of this market for future U.S. soybean sales.
A recent article in Forbes says the Trump tariffs could do permanent damage to soybean farmers.
There are two moves China could make to inflict long-term damage, says the report. First, it could increase its domestic production by incentivizing famers to grow more soybeans.
Second, China could rely on Brazil to make up some of the shortfall in U.S. imports.
“Trump may have awakened China to an area that they needed to invest and secure their growing economy,” says Chuck Jones, author of the Forbes article. “The President’s actions may actually have a very large negative impact to soybean and other U.S. farmers over both the short and long term.”
All is not lost
It may not be all bad news for soybean farmers — there may be opportunities opening up in the European Union, the world’s second-largest importer.
According to a report in Bloomberg, the dispute has boosted prices in Brazil, the top shipper, forcing EU processors to look elsewhere for supplies. That means the U.S. could overtake Brazil as the biggest seller to the 28-nation bloc next season, according to Rabobank International Ltd.
Even with that bit of optimism, the immediate impact of the Trump tariffs seems to be directed at soybean farmers’ bottom lines. The loss of the Chinese market might create a glut in the United States, driving prices down further.
As for the long-term effect, we will have to wait and see where this trade war takes us.