There’s been a lot of talk about proposed tariffs on American soybeans in the wake of President Donald Trump’s much-talked-about trade war with China.
Local experts in Kosciusko County aren’t so sure producers in this area are going to suffer long-term consequences as Trump attempts to balance trade between two of the world’s economic superpowers.
Initially, when word came out last week of up to $150 billion in tariffs on Chinese goods coming into the U.S., there was a bit of a knee-jerk reaction.
Kip Tom, CEO of Tom Farms in Leesburg and a member of Trump’s agriculture advisory committee, said that any pain felt by soybean producers would be short-term, and with it comes a long-term gain for the country.
In a conference call with the committee Monday, Tom said U.S. Secretary of Agriculture Sonny Perdue wanted to reassure producers “we have your back. We will make sure the American farmer or rancher and those involved in the agricultural supply chain are not forgotten.”
Tom said, “I think that comment adds a lot of confidence to the conversation, as well as we can be rest assured there have been teams in place for the last few weeks in these discussions. If anything, over the last five to six days, additional resources, human talent, have been placed in these discussions, not only in the United States but in China.
“There’s a lot of hard work being done today on behalf of the American consumer and the industries in this country.”
Ryan Martin, farmer origination specialist at Louis-Dreyfus Commodities, Claypool, said the news reports last week caused some market fluctuation, but the market recovered almost immediately.
“We’ve already seen the knee-jerk reaction when the expanded list (of additional tariffs) was issued by the Chinese last week. That reaction was for the market to spike lower,” Martin said.
“As we look at the overall set-up for world demand, you can make the argument that (tariffs) really shouldn’t have an exceptional impact. What we mean by that is the world appetite for soybeans is huge. In the coming year, 2018-19, China alone is looking to import 100 million metric tons of soybeans. There’s no way they can do that without the United States,” he said.
“Even if China put all their imports in Brazil, the Brazilians would have a hard time covering it and meet their own domestic demand, and the rest of the world that shops from Brazil would have to go somewhere.
“So when you look at it in those terms, you have to say the overall price issues shouldn’t be overly dramatic. But we’re working with a market that is very fluid and highly speculative at times and the knee-jerk reactions, the thought of what could be, is going to lead to a lot more market back-and-forth than the actual problems,” Martin said.
“And at the end of the day, whether or not you want to believe the Trump administration, you have to figure this is going to trigger some kind of talks, and who knows where those negotiations will lead to?”
He said producers in China and in other markets need assurances that they will be able to feed their livestock.
“Where we’re seeing the biggest price difference isn’t in soybeans, but in soybean meal. That’s just people wondering where their feed ingredients are going to come from on down the line, and wondering if it’s going to be a short-term or a long-term deal. And there are bigger price swings going on in Brazil; they’re paying above current board prices right now,” said Martin.
“So it’s more of a matter of finding out what the long-term play going to be. I think in the long term demand is demand, and that’s not going to change just because the Chinese say they’re going to buy from one place or another. The need is going to always be there, while there could be some wild swings, and it could get very uncomfortable for a while. But honestly the weather and how it affects the planting and growing season are going to be bigger factors than anything else.”
Robert Bishop, president of the Kosciusko County Farm Bureau, agreed that there’s a need for producers to see beyond the moment, and he fully understands the concerns producers in Kosciusko County and elsewhere have.
“It’s been blown out of proportion. Before anything happens, it’s going to be a period of time. With two factions, the U.S. and China, that are going at each other a little bit with the tariffs, it’s going to cause some concern,” Bishop said.
“I can understand why President Trump wants to do something because trade inequality between the United States and China is very great. It’s always frustrating for agriculture because it seems like most of the time it seems like they pick agricultural products as the bargaining agent. Therefore, presently the prices are kind of depressed.
“Prices in many places are below the cost of production and then when you talk about a tariff coming from China, one of biggest users of soybeans, that becomes a real issue to each farmer’s bottom line.”
Bishop said that even if a producer wanted to switch crops, it’s too late to do so for the 2018 growing season. He added that crop rotation tends to be a bigger factor in planting decisions over what the markets are doing at any given time.
Tom said it’s important to take a big-picture view of the entire situation, and he believes in the long haul the American economy will be better as a result of the current trade negotiations.
“Right now it’s a bargaining game that’s underway, and it could leave the world trading system in a better-off position, especially with China cheating less,” he said. “The least benefit would be the strengthening of the political stability of trade in the U.S. and other western nations. It’s an outcome of high strategic value, even to China.
“A lot of our commodities are interlinked, whether it be soybeans and corn tying into pork, poultry, dairy, beef, all these things are tied together because of the consumption that goes on throughout the system,” he said.
“But when we look at exports, the U.S. exports about $14 billion worth of soybeans to China, and most of those soybeans are used for their pork production. Their pork production is about six to seven times what it is in the United States. It’s hard to imagine; we think we’re the largest pork producer, but about three-fourths of the meat the Chinese consume is pork.
“Growing incomes around the globe, especially in Asia, allow people to have diets with more protein in them. That’s why we’re seeing this export of soybeans and pork into China, because the people there access to have more disposable income and can now add that protein.
“I can’t see them wanting to take a step back. So it doesn’t matter of your a producer in Kosciusko County, in Iowa, or somewhere in Arkansas, the reality is it’s a commodity market that trades on the values of global prices.
“We have to realize this trading (overhaul) is a long process; it’s going to take months. We’ll put out our papers for public comments, review those comments and decision are going to be made. But I can tell you because of my involvement with the Trump ag advisory committee, I’ve very, very confident in the president’s choice to do this, because we had to fire a shot across the bow to stop not just China’s unfair trading practices, but they are illegal as well. It affects intellectual property, pharmaceuticals and commodities that we grow, and it’s time to get this straightened out,” he said.