Derek Haigwood said no agriculture sector has suffered more than soybeans from the current tariff trade war between the United States and China.
He would know. Haigwood, a fourth-generation Newport farmer, is chairman of the U.S. Soybean Export Council and a member of the United Soybean Board. His family plants about 5,000 acres of soybeans a year, with each acre producing some 60 bushels in a good year.
But fall 2018 is a rough time to be a soybean farmer. The trade war escalated in June when China imposed a 25 percent tariff on American farm products, including soybeans.
That led to a significant drop in soybean futures prices this year, from more than $10.60 a bushel in May to $8.33 in late October. Then wet weather followed by high temperatures in eastern Arkansas damaged crops that were just about ready to be harvested.
Haigwood also said the soybean basis — the difference between the actual price farmers receive and the futures price set by the Chicago Board of Trade — is widening, cutting further into farmers’ margins. All that difficulty is piled on top of China not buying American soy now or anytime soon.
“It is a perfect storm,” Haigwood said. “You are really seeing the squeeze come in on Arkansas soybean farmers. … We have the 25 percent price reduction, the increased basis, the damaged crop from the severe weather and then these stocks that are just piling up all along our infrastructure. It just keeps on adding on.”
China, according to national news accounts, believes it can make its farming industry work without American soy products, which are used in feed for poultry and pigs. China is the crown jewel of soy importers, buying approximately 64 percent of the world’s soybean exports.
The U.S. Department of Agriculture recently reported that soybean exports are down nearly 23 percent this year compared with a year ago. Sales to China are down more than 85 percent.
Hard-Hit Home
Those statistics draw blood in eastern Arkansas, where soybeans are planted in about half of the acreage in the Arkansas Delta. The industry produced 178 million metric tons of soybean products a year ago worth nearly $2 billion.
A third of those products were sold to China — before the trade war, that is. Haigwood said shipments from the Delta to China are down 97 percent.
As soybean farmers nationwide scramble to find alternative markets to China, the price of soybeans is a heavy anchor. With a buyer as big as China now absent from the market, current stocks of soybeans are piling up.
If a farmer finds a new buyer for soy, the price is $8.33, not the pre-tariff $10.60.
Add another 75 cents per bushel — the average basis for transport and storage charged to farmers — and farmers face a severe economic hit.
“We need that tariff dropped by China,” said Brad Doyle, a Weiner farmer of 2,000 soybean acres and a national director of the American Soybean Association.
“We want fair trade. Honestly, farmers don’t want to take a handout in the form of an aid package if they had their choice. Just give me what my beans are worth. They were worth $10. Because of retaliation now they are worth low $8s. We are picking up some other customers, but they aren’t China.”
The aid Doyle mentioned is the $12 billion package put forth by the USDA to help American farmers of all crops survive the tariff market. For soybean farmers, the payments amount to $1.65 a bushel.
But Haigwood estimated that between the price drop and the basis increase, farmers would get $2.75 less per bushel than they did before the tariff showdown. That’s nearly $13 billion in lost revenue on an estimated 4.7 billion bushels of soybeans.
“You can see the loss that America will undergo with these tariffs,” Haigwood said. “The subsidy is not even close to that. The soy industry has suffered the greatest of all the ag commodities.”
Head of the Spear
Haigwood said soybean farmers are the “head of the spear” in the tariff war because the crop had been so popular in China.
Haigwood and Doyle said there is a long-term risk for soybean farmers if the trade war with China continues for an extended time. The other main supplier of soybeans to China has been Brazil, which is ramping up production to take advantage of the supply gap.
“They are sitting on 400 million acres of land,” Doyle said. “They can crank up the bulldozers and go to town; that will be detrimental long term.”
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The worry is that Brazil will swoop into China and take market share from U.S. farmers, something that Brazil won’t just cede if and when the trade war ends. As previously noted, China officials have talked about not buying U.S. soy in the future, although that could also be trade-war posturing.
In the meantime, Haigwood said, it is vitally important for U.S. soy to find new markets and expand in current markets. That’s not as simple as ordering pizza, of course, because selling and shipping tons of soy to a new port take planning, organization and infrastructure.
Haigwood said Brazil is scaling back in some markets such as Europe to focus on China. U.S. farmers need to hit those abandoned markets and create new ones, such as Bangladesh and India.
“Globally we’re set to produce about 379 million metric tons of soy, and the globe consumes 1 million metric tons a day on average,” Haigwood said. “There is still a gap globally that is not filled overnight.”
Farmers such as Doyle and Haigwood have some flexibility because they have storage bins on their farms capable of holding their entire crop until the market is more advantageous. Some farmers, especially those on rented land, survive (or don’t) on a more immediate basis, so the current trade war could be fatal.
They simply don’t have time to wait for a new market to open or prices to recover.
“Republicans, Democrats, whatever it is, my job is to produce the most sustainable, high-value, high-end soybean crop that I possibly can,” Haigwood said. “I didn’t have anything to do with any of these tariffs. It’s going to be devastating across the nation. What’s going to happen in North Dakota and South Dakota and Iowa? Are they going to plant all corn next year? If it’s $8 beans and I have ground that will produce soy, I may plant cotton or corn or rice or who knows?”
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