Angst hangs over farm belt after reports that China stopped buying US soybeans

Key Points
  • Soybean farmers are uneasy about reports that China has already halted purchasing U.S. beans.
  • The reports come as soybean growers enter a new planting season.
  • Farmers fear China could act on its threat to slap a 25 percent tariff on U.S. soybean imports if current trade talks in Beijing fail to resolve differences.
Soybeans are harvested in Princeton, Illinois.
Daniel Acker | Bloomberg | Getty Images

Farm country is worried about reports that China has curbed buying U.S. soybeans due to the ongoing trade spat.

Farmers in the nation's heartland are beginning the new planting season facing uncertainty given Beijing's threat to impose a new tariff on soybean imports. The planting season comes as a delegation from the Trump administration is in Beijing for talks to resolve major differences.

"My concerns are any time trade issues develop that's not good for agriculture," said soybean farmer Chris Hausman, a former Illinois Farm Bureau director. "We export a large percentage of our soybeans that we raise and corn for that matter."

In early April, Beijing warned it might impose a 25 percent tariff on soybeans as well as duties on other major U.S. agricultural products, including corn, wheat, cotton and beef. It followed the Trump administration's threaten to slap tariffs on Chinese products including consumer electronics and robotics.

'Worrisome' retaliation

"Using soybeans as a retaliation for other trade disputes is really worrisome for farmers," said Gregg Fujan, a soybean grower in Nebraska. "Those international markets are critical to our profitability. So hopefully the people doing those negotiations can come to an agreement and we can get this worked out."

Sen. Chuck Grassley, R-Iowa, said in a statement Thursday that soybean prices remain low and growers "are barely making ends meet." He called on the Trump administration to take short-term steps "to help farmers if they are harmed" by the retaliation. Longer term, though, he said there's a need for the administration to help the industry "find alternative foreign markets."

"While American farmers are willing to do their part to strengthen the economy, at this point in time we're at five-year lows for farm income and our system can simply not handle any added stress," said Tom Slunecka, CEO of the Minnesota Soybean Growers Association.

China buys roughly half of the U.S. soybean exports, and about 1 in 3 rows of soybeans grown on the nation's farms goes to the world's second-largest economy, according to the American Soybean Association.

China canceling orders

But U.S. government data show China has been canceling U.S. soybean orders for three-straight weeks.

In the three weeks ending April 26, China canceled just over 196,000 metric tons (or about 7.2 million bushels) of U.S. beans for the current marketing year, according to U.S. Department of Agriculture. That's roughly equivalent to filling up the cargo holds of four mid-sized bulk ships.

Brazil, though, enjoyed record volumes of soybean exports last month, according to Anec, the country's grain exporter group. Anec put exports at just over 11.6 million tons in April, or about 1 million above the March tally.

Soren Schroder, CEO of agricultural commodities dealer Bunge, said during a Bloomberg interview on Wednesday that U.S. soybean sales to China have essentially stopped. "All the business that's being conducted with China now is being conducted from non-U.S. origins," he said.

Argentina steps up buying

"We've been tracking a reduction in Chinese imports [of U.S. soybeans] for really about a month, or ever since the news first started [about the potential tariff]," said Slunecka. "Most of that market has been sucked up by other countries that we typically don't sell soybeans to, like Argentina."

Argentina's 2017-18 soybean production is expected to fall to a nine-year low due to drought conditions. As a result, Argentine crushers — producers of soy meal and soy oil — have a big appetite these days for U.S. soy.

Still, farmers are quick to point out that this time of year U.S. soybean shipments to China typically decline anyway as Brazil harvests its crop and ramps up its own exports to global markets. Brazil is expected to continue exporting through the summer months.

"This is kind of a normal time of year to have a little bit of a slowdown," said John Heisdorffer, an Iowa soybean producer and president of the American Soy Association. "The South American crop is all coming in hot and heavy, and there are a lot of beans moving into ports down there."

China's 'emergency' steps

At the same time, there are reports that China is taking "emergency" steps to boost its domestic soybean output this year to make up for any future shortfalls in American supplies. China wants to boost soybean acreage but its domestic soy production supplies less than 15 percent of its total needs.

Hausman, the Illinois soybean farmer, said he's "not too concerned" about China taking steps to increase its own soy production.

"If it costs more in China to raise a bushel of soybeans than we can, then the Chinese people are going to pay the increase," he said.

China acquires about two-thirds of the world's soybean trade, using most of it for soy protein to feed roughly 700 million pigs in the country or to make cooking oil. China's total bean imports are projected to increase sharply over the next decade, although without resolution of the trade friction between Beijing and Washington the big winner is likely to be South America.

Together, the U.S. and Brazil represent about 80 percent of the global exports of soybeans.

U.S. exporter risks

Meantime, some experts suggest U.S. exporters may have second thoughts selling to China these days given the current uncertainties.

"People say the Chinese have quit buying," said John Baize, an international agricultural trade and policy consultant based in Virginia. Yet he said it's more like "U.S. exporters have quit selling" because they run the risk of suffering a financial setback.

Cargo ship at the Long Beach Container Terminal at the Port of Long Beach in Long Beach, California.
Tim Rue | Bloomberg | Getty Images

According to Baize, the risk for U.S. exporters is they could have the soybeans on cargo ships bound for Chinese ports and Beijing could then announce the tariffs are going into effect.

Eat additional costs

The Chinese importer usually has to pay duties but the risk is they could refuse to do it when the ship is halfway across the ocean. If that were to happen, the U.S. exporter would have to scramble for a new buyer, reroute the vessel and potentially eat additional costs associated with the diverted cargo.

"Nobody is willing to take that risk of maybe a $100 a ton tariff that might be imposed," said Baize. "Either you're going to have to pay that tariff [as an exporter] or the [Chinese] customer will have to pay it, which they won't and the sale will get canceled."

Ag trader's $30 million hit

And there is recent history to suggest U.S. exporters may have reason for concern.

Last month, Beijing imposed a hefty anti-dumping duty on U.S. sorghum, and several cargoes of the grain bound for Chinese ports became stranded because grain handlers would have been forced to pay almost 179 percent tariffs. Some of the sorghum shipments eventually got rerouted to Saudi Arabia, Japan and Spain.

On Tuesday, agricultural commodity trader Archer Daniels Midland announced it would take a $30 million hit in connection with sorghum-related impacts. The Chicago-based company is a major soybean processor as well as one of the largest shippers of sorghum to China.

China is the top buyer of U.S. sorghum, which it uses for animal feed and to make liquor. Last year, China bought about $1.1 billion worth of U.S. sorghum. By comparison, the U.S. exports about $14 billion worth of soybeans to China.