American farmers are worried about possible trade retaliation from China for President Donald Trump's tariffs on foreign steel and aluminum.
One U.S. crop sticks out: soybeans. China buys more than half of the U.S. soybean exports and roughly 1 in 3 row of beans grown on the nation's farms goes to the world's second-largest economy, according to the American Soybean Association.
Last week, Trump unveiled a 25 percent duty on steel imports and 10 percent charge on aluminum imports, saying the two industries "are vital to our national security." However, that isn't sitting well with farmers in the U.S. heartland because they are well aware China has already warned about possible retaliatory action.
'Waiting game'
"The Midwest farmers are very concerned that we'll be one of the areas that are retaliated against," said Wendell Shauman, a soybean and corn farmer in Illinois, the nation's top state in soybean production and second largest in corn after Iowa. "We don't know how this will play out. Right now it's a waiting game."
Shauman said weak corn prices for four-straight years have meant "the Corn Belt is essentially in a recession. If you took some more markets away from us, it could push us into a depression," he said.
"We're looking for long-term stability, and major markets like China play into that stability in a great way," said Tom Slunecka, CEO of the Minnesota Soybean Growers Association, which represents the state's soybean growers. "So it could have short-term and long-term implications if we were to lose a major part of that marketplace."
According to the U.S. Department of Agriculture, soybean exports to China is a $14 billion a year business and most of it is for soy protein to feed roughly 700 million pigs in the country or to make cooking oil. When including other farm-related products, China's total agricultural exports represent more than $21 billion annually for U.S. farmers.
South American competition
"The idea that we're the only game in town, and these partners have no choice but to purchase from the U.S. is flatly wrong," said John Heisdorffer, a farmer from Iowa and president of the American Soybean Association. "Our competition in Brazil and Argentina is eager to capitalize on whatever openings these tariffs create for them in markets like China and elsewhere."
The U.N. Food and Agriculture Organization estimates Brazil will overtake the United States as the world's largest soybean producer in the coming decade. Together, the U.S. and Brazil represent about 80 percent of the global exports of soybeans.
"Soybeans is certainly an area where we do a lot of business with China, and I think they have certainly indicated that they are investigating looking into soybeans as a potential retaliation,'" said Joseph Glauber, a former USDA chief economist and now a senior research fellow at the International Food Policy Research Institute in Washington.
Then again, Glauber said, the flip side of retaliations are they could inflict pain on China, too. Any action by Beijing would have repercussions for China's importers, crushers and livestock farmers who rely on the soy protein.
"I'm sure there's a lot of concern in China over the potential loss of protein meal coming in from the U.S.," he said.
China warning
Last month, a trade official in China's commerce ministry threatened that it would retaliate against possible tariffs and called any such levy foolish. "The spectrum of national security is very broad and without a clear definition it could easily be abused," said Wang Hejun.
"If the final decision from the U.S. hurts China's interests, we will certainly take necessary measures to protect our legitimate rights," Wang added.
In fact, China took trade action against some U.S. agricultural products last year, including anti-dumping and anti-subsidy duties on U.S. imports of distillers' dried grains, a corn-based ethanol byproduct used for animal feed.
Then, earlier this month the ministry announced an anti-dumping probe into U.S. imports of sorghum, a cereal grain used mostly for feed and ethanol. The Chinese investigation is seen as largely a warning to the Trump administration but it could lead to tariffs and could hurt sorghum-producing states, particularly Kansas, Texas, Colorado, Oklahoma and South Dakota.
Trump base
If agriculture gets hit with trade retaliation, Trump also risks hurting his support in farm belt states and in the GOP, according to analysts.
Last week, Iowa and Nebraska congressional delegations sent letters to Trump asking him to reconsider the tariffs on imported steel and aluminum, expressing alarm about possible retaliatory measures.
At the same time, national farm groups have voiced concerns to the Trump administration and Congress.
A spokesman for the nation's largest agricultural group, the American Farm Bureau Federation, said more than 70 percent of U.S. agricultural exports last year were made to trade partners that sell the most steel to the U.S., and more than half were to trade partners that sell the most aluminum to the U.S.
"We're hoping for a good outcome that whatever tariffs may or may not be leveled, we're not going to be bearing the brunt of it from countries that just want tariffs on their own goods," said Will Rodger, the farm bureau's spokesman.
NAFTA risk
Top exporters of steel and aluminum include China, Canada, Brazil, Mexico, Germany and Russia — all buyers of U.S. agriculture. But Trump has said he plans to exempt Canada and Mexico and possibly other countries.
Regardless, there's still risk of impacts to U.S. agriculture from Canada and Mexico if the Trump administration withdraws from the 24-year-old North American Free Trade Agreement. Also, the administration has sought to connect Canada's exemption on the steel tariff issue with NAFTA negotiations but Ottawa has insisted the two are not linked.
"If in fact Canada and Mexico are backed out of that equation, you get kind of China being the big question mark," said Rodger.
Prior to Trump's announcement about the steel and aluminum levies, soybean prices were starting to rise due to concerns about the four-month drought in Argentina affecting soybean production.
Soybean futures
Nevertheless, traders say the potential for retaliation from the Chinese has put an overhang more recently on U.S. soybean futures.
The May soybean futures contract Wednesday on the Chicago Board of Trade set a three-week trading low of $10.31 per bushel, down about 1.7 percent.
"Soybeans have been in the spotlight of being one of the instruments of retaliation, and that is real," said James Cordier, president and head trader of OptionSellers.com, an investment firm in Tampa. "That did scare the market recently."
For Cordier, though, the overhang on soybean futures from retaliation concerns may persist but he's skeptical Beijing will make a significant cut to its U.S. soybean purchases.
"China needs soybeans so badly that they may talk about it," said Cordier, "but for the most part with the Argentinian crop being small, I don't think China wants to do too much with American soybean as a bargaining chip."