This time last week soybean growers were concerned about winter weather to start the planting season.
Now they have a bigger worry: China, the top export market for U.S. soybeans, announced a 25% tariff on the crop, counterpunching after the U.S. proposed $50 billion in tariffs on a variety of Chinese products.
Soybean futures dropped 5%, the most since 2016, on the news Bloomberg reported, before recovering somewhat in mid-day trading.
"We did recover some of those losses today," said Angie Setzer, vice president of grain for elevator company Citizens L.L.C. "If we were in a truly bearish setup like we were a year ago, we would have closed limit down across the board."
"You just don’t know where the market directions going to head until you find yourself in more of a long trend," Setzer said. "Friday’s close is much more important than today’s open or even today’s close. If we see a downtrend it may mean highs for the year have been put in place, unfortunately. "
Setzer said she doesn't expect a quick resolution to the trade conflict, given that the moves just began and both parties are stubborn.
"When it comes to food production and food needs, I would imagine China has a substantial risk in their food costs, but they’re smart traders at well," she said. "I hope that farmers have done what they can to protect their risk coming into this circumstance we find ourselves in."
Grower advocates are pushing for a scaled-back approach to the tariff confrontation.
"Chinese demand is what supports soybean prices in the United States, it’s what keeps them where they are. You’re talking about a country that takes one in every three rows of our soybeans, $14 billion," said Patrick Delaney, the American Soybean Association's policy communications director, by phone.
Delaney said the ASA reached out to the White House on March 12 hoping to discuss trade.
"The idea that the Chinese will have to come to us because we’re the only game in town is completely false," Delaney said. "Brazil already supplies more than 50% of imported beans to China, we’re in the 30's. Trade has been a wonderful success story for American agriculture, keeping price levels up. This doesn’t help."
Here’s a review of what the major players in soybeans are saying, and what they think may happen next.
- United Soybean BoardThe organization vowed to continue working to find new export markets for U.S. soy products.
- U.S. Soybean Export CouncilDuties on soybeans will hurt U.S. farmers as well as Chinese soy processing, animal producers and consumers, Paul Burke, North Asia Regional Director told Bloomberg.
- Canadian growers Said that tariffs not only on soybeans, but on apples and other fruits could hurt Canadian ag as U.S. products looking for a home bleed over into the neighboring market
- American Farm Bureau Federation
“Farmers and ranchers are, by necessity, patient and optimistic. We know markets ebb and flow. But China’s threatened retaliation against last night’s U.S. tariff proposal is testing both the patience and optimism of families who are facing the worst agricultural economy in 16 years. This has to stop,” said AFBF President Zippy Duvall in a statement.
“Growing trade disputes have placed farmers and ranchers in a precarious position. We have bills to pay and debts we must settle, and cannot afford to lose any market, much less one as important as China’s. We urge the United States and China to return to negotiations and produce an agreement that serves the interests of the world’s two largest economies.”
The soybean tariff came a week after China imposed tariffs on a variety of U.S. crops including nuts, fruit, and more.
Chinese officials had previously threatened in Fall 2017 to put a tariff on soybeans if the U.S. imposed tariffs, according to a delegation from the American Soybean Association, Reuters reported in March.
The Farm Bureau’s national and state branches put out statements with a simple message to leadership in both China and the U.S.: “This has to stop.”
Delaney says the American Soybean Association still hopes to meet with the White House to talk about how the tit-for-tat tariffs can be stopped.
"We still would like to sit down with the president and talk about why there might be a better way to go," Delaney said. "If you look over the last 5 years, crop prices are down 40% since 2013.
That has led to farm incomes going down 50% in the same time period....This has the potential to make it infinitely worse."
From a price perspective, Setzer of Citizens L.L.C. said a protracted tariff dispute may not be as devastating for soybean sellers as some fear.
"I hope it’s sooner than later that it’s resolved. But the one thing I can see with my experience in agriculture is there’s a lot of ways around (trade constraints)," Setzer said.
For an example, she pointed to a Canadian corn tariff that came from a trade dispute over tires.
"It was resolved relatively quickly, I think it was six weeks, but it took all of a week for buyers and sellers to figure out a way to adjust paperwork," Setzer said. "I wouldn't be surprised to see the trade war last an indefinite amount of time, but for the cash trade to work around it."
"When it comes to soybeans and pork you’ll be amazed how creative some of these buyers and sellers can be working around it. We’ll just have to see how the cash market works around it."