Of the $20 billion of U.S. agricultural exports to China that became subject to new tariffs in 2018, over $10 billion were applied to soybean exports. Those numbers reveal that U.S. farmers exported more soybeans to China than all other agricultural products combined. Farmers have historically exported 60% of all their total soybean production, half of that to China.
Nowadays, it’s a completely different story. United States Department of Agriculture numbers show soy exports to China were down 85% as of February 2019. They didn’t drop to zero only because the Chinese government directed its importers to place some mercy orders in the U.S. to signal good will in the trade negotiations. Given the current situation, it’s doubtful any of those will recur anytime soon.
When China’s 25% soy tariff was on the horizon last summer, prices for U.S. soybeans dropped dramatically. Meanwhile, the tariff caused the price of beans in Brazil and Argentina to rise, creating a price differential of $60 per metric ton, or $1.65 per bushel.
“Historically, there has never been such a dramatic price spread,” said Mark Albertson, director of strategic market development at the Illinois Soybean Association.
Trump told farmers not to worry, as Europeans would increase their soy purchases thanks to the low prices. And indeed, they did, but U.S. farmers were still stuck with a mountain of soybeans, 900 million bushels as of April, compared to less than 600 million last year.
As of February, year-over-year soy shipments increased by 132% to the EU and 150% to Egypt. But thanks to the loss of the Chinese markets, U.S. export tons are still down 31%.
Demand for soy in China—where imports are used primarily for pig feed—is much greater than elsewhere in the world, standing at 150 million tons this year, according to the USDA, and projected to grow to 200 million by 2027. EU demand is expected to remain flat at 10 million tons and the same goes for demand growth projections in Latin America, the Middle East, and North Africa.
Growth in sales to other markets “helps mitigate the situation,” said Albertson, “but the bottom number is still minus 31%.”
The tariffs have caused some unusual patterns in global soy trading. Argentina, the world’s third-largest soy producer, imported over two-million tons from the U.S. in the 12 months ending February 2019—up from zero—while its soy exports to China soared.
“Exporters make the sale and decide later where to pull the soy from,” Albertson explained. If, as Albertson suspects, U.S. exports to Argentina come to make up for Argentinean exports to China, companies have found a way to circumvent the tariffs.
Soy prices in the U.S. have remained low, making for difficult times for U.S. producers. Helping the situation was USDA’s program that paid farmers $1.65 per bushel for each bushel harvested last fall. But USDA said the payment was a one-off and that farmers should not expect any further relief.
“The payments made a difference to most farmers between profit and loss,” said Albertson. “If the trade war continues, farmers will be forced to sell beans at very low prices.”
To make matters worse, the U.S. Midwest experienced a very wet spring this year, delaying planting. “It’s a perfect storm for soybean farmers,” said Albertson. “They are fed up with the trade war and are worried about what the future holds for this year and years to come.”
