Farmers hope China remains a destination for soybeans, but know there are other options
With or without China, South Dakota farmers feel they’ll still have a market for their soybeans.
That’s good to know even as the potential of a trade war and threats of new tariffs between the U.S. and China seemingly subside, at least somewhat. But the talk caught the attention of local farmers — and rightfully so.
Soybean prices dropped significantly when China announced April 4 that it would move to enact new tariffs on some of the U.S.’s biggest industries, including agriculture. The 40-cent drop resulted in an overnight income loss of $15,000 to $20,000 to the average South Dakota soybean farmer, according to a news release from the South Dakota Soybean Association.
Within a week, though, the soybean market bounced back and was short just 10 to 20 cents of the high, said John Horter, who farms soybeans, spring wheat, corn and alfalfa near Andover. Horter also serves as the first vice president of the soybean association. But he spoke as a farmer, not as a board member.
At the end of the week, May soybeans closed at about $10.55 a bushel. That’s up from about $10.15 a bushel early this month.
South Dakota is exceptionally vulnerable to trade talks because the state, with a population of roughly 870,000, can’t use all of its agriculture commodities, said Ryan Wagner, who grows corn, soybeans and spring wheat in Day County.
Therefore, the state’s farmers rely heavily on exporting its crops and livestock, said Troy Knecht, a Houghton farmer who grows corn, soybeans and alfalfa.
Nearly 70 percent of the 255 million bushels of soybeans harvested in the state are exported, and China is the largest importer of South Dakota soybeans, according to the soybean association.
A trade war would create a lot of uncertainty in an already sluggish agricultural economy that has some farmers worried about breaking even or losing money, Knecht said.
“The American farmer needs certainty going into this season and we don’t have a profitable season right now. But if you know where you are trade-wise, you might have an opportunity for prices to get back up and (operations) to get back into the black,” he said.
There’s also the belief that there might be opportunities to trade with other countries, if not China.
“There might be hardship in the near future, but in the long run, we know China needs soybeans, so we’ll be able to move them there. We just need to be able to come to an agreement where we can get them there and compete with other countries,” Horter said.
Long-term effects and concerns
New tariffs would not decrease demand overnight, but they would inevitably increase costs of ag products to consumers, Wagner said. That could lead to an economic slowdown, which would further decrease demand, Wagner said.
He fears competitors in other countries could ramp up their production in order to fill the void created by tariffs.
He would rather U.S. farmers and leaders be in a position to keep the demand the U.S. already has rather than start from scratch and build new.
If the two governments don’t resolve the issue, China will look to South America, said Mike Nickolas, executive vice president and chief operator of Agtegra’s grain division.
Agtegra is the agriculture cooperative created when Wheat Growers and North Central Farmers Elevator merged.
“But (South America) doesn’t have the supply, so they’d have to come back. Or there would ultimately be a big shift in where our beans go,” Nickolas said. “At the end of the day, we’ll be OK. It’s just getting there.”
Historically, the U.S. hasn’t sent many soybeans to South America, but that has changed recently, Nickolas said.
“There’s only so many beans produced in a year. Argentina had a severe drought, so their supply is way down. Brazil’s supply is way up,” Horter said.
The U.S. has shipped some beans to Argentina where the supply is low, he said.
“There are definitely other places we’ll be able to move our beans, maybe not as efficiently or at as good of a price,” Horter said.
The other big concern is the damage caused to the relationship between the U.S. and China and how that affects the U.S.’s ability to keep China as a strong market for soybeans, Nickolas said.
That relationship has been strained for a while and is a long-term issue, U.S. Sen. Mike Rounds, R-S.D., said on April 12 on a media conference call.
“Make no bones about it. China is kind of like Russia. They aren’t necessarily our friends. They are our competitor, and they play by a different set of rules when it comes to how they do trade,” he said. “We know it’s not fair, and the president has every right to point that out.”
However, the U.S. would have been in a better position to negotiate had it first revisited contracts with other countries, Rounds said.
President Donald Trump said on April 12 that he would revisit the Trans-Pacific Partnership, a previously proposed trade agreement between 11 countries and the U.S. That’s the right move, Rounds said, as it would put the U.S. in more of a position of strength to negotiate with China.
Rail exports, future
South Dakota relies on railroad access to export its products to the West Coast. In fact, that rail access was key for a new soybean processing plant being built in the northeastern corner of Aberdeen by Ag Processing Inc. That company plans to ship a substantial amount of soybean meal directly to its Port of Grays Harbor export terminal in Aberdeen, Wash.
When the plant was announced in November 2015, Cal Meyer, AGP group vice president/chief operating officer, said the global demand for soybean meal was continuing to grow, “especially throughout the Pacific Rim.”
The proposed tariffs, however, might mean a significant shift in where that demand is, Nickolas said.
AGP officials did not respond to messages seeking comment. But area farmers remain optimistic that the plant will only help things when it begins operating, likely in 2019.
“The soybean plant can’t be anything but a good thing for farmers,” Wagner said. “It’ll use our products locally and (all of the soybeans) need a market. With them being the farthest northwest (plant), they are at an advantage for shipping it out.”
AGP will source beans from a 100-mile radius, but that will still leave an ample supply to be purchased and shipped, Nickolas said.
In the meantime
The best-case scenario is that negotiations between China and the U.S. start soon and that a resolution gives farmers stability again, Knecht said.
Producers with concerns about tariffs should reach out to the state’s congressional delegation and tweet the president, he said. Agricultural organizations are doing a good job of that, he said, but real people — more people — can be more effective, he said.
He also suggests forward marketing. Selling grain ahead at an opportune price might make some money.
“Is it a home run? No. But it’s profitable,” he said.
Nickolas remains confident in at least one thing.
“It’s all going to get worked out,” he said. “It’s too important to South Dakota and the soybean industry to not get worked out.”
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