Trump’s Tariff War with China Hits Arkansas Farmers Hard

Rusty Smith, who farms near Cotton Plant, says market uncertainty has made it hard to book a soybean crop for delivery.

Every war has casualties. A trade war is no different.

In this case, the casualties include Arkansas soybean farmers, who have seen exports to China plummet. That nation imposed retaliatory tariffs on U.S. soybeans after the Trump administration, alleging unfair trade practices, increased tariffs on imports from China.

“It’s certainly having an impact,” said Arkansas Agriculture Secretary Wes Ward. “China is a large consumer of U.S. soybeans, so the soybean industry is the one taking the brunt.”

China is, in fact, the biggest buyer of soybeans in the world; soybean products feed China’s vast livestock herds. In 2017, the United States was the second-biggest supplier of soybeans to China, behind Brazil. China bought $12.4 billion worth of U.S. soybean products in 2017, before the trade war.

Arkansas, for its part, is one of the biggest producers of soybeans in the country. In 2017, the state raised a soybean crop valued at $1.7 billion. Fifty to 60% of Arkansas soybeans are exported, with about 30% of those exports going to China, said Travis Justice, chief economist for the Arkansas Farm Bureau. That would translate to at least $255 million in Arkansas soybean exports to China in 2017.

And though China put a 25% tariff on U.S. soybeans in July 2018, Arkansas still sold $130 million worth of oilseeds and grains to China last year, according to the US-China Business Council. The vast majority of that was soybeans.

The loss of the Chinese market has triggered a decline in soybean prices. “We’ve seen in the past year soybean prices erode 15%,” Justice said.

As of Thursday, when Arkansas Business went to press, President Donald Trump was scheduled to meet with President Xi Jinping of China over the weekend, and they were expected to discuss trade. Treasury Secretary Steven Mnuchin told CNBC Wednesday that the U.S. and China “were about 90% of the way” to a trade agreement. But then, also Wednesday, Trump told Fox Business that he’d levy even more tariffs on China if a deal isn’t reached.

Agriculture, dependent on the weather, is always an unpredictable industry. The Trump administration is an unpredictable administration. But the trade war has heightened the risk growers face. “Uncertainty” was the word used over and over again by farmers interviewed by Arkansas Business.

“It has given us so much uncertainty as far as booking a crop for delivery,” said Rusty Smith of Des Arc, who grows from 1,200 to 1,400 acres of soybeans, depending on the year, near Cotton Plant.

This year’s wet weather and flooding, which delayed the planting of soybeans — if not outright prevented many growers from getting a crop in the ground — has only exacerbated farmers’ anxiety. “There’s not a right answer for a farmer trying to book a crop this time,” said Smith, who has been farming for 29 years.

“I don’t have any of my soybean crop booked because of the volatility in the market,” said Derek Haigwood, who farms with his father in Newport. Haigwood also is chairman of the U.S. Soybean Export Council and a member of the United Soybean Board.

“Last year at this time I had probably 50% of my crop already booked, had prices locked in and knew where I was going. And this year, it’s not at a desirable price, so I’m still hoping for a better price.

“You have a lot more uncertainty there,” he said. “And weather conditions here in Arkansas have been horrible this year.” Haigwood noted that he’s only 39, but he’s been farming his whole life “and we don’t have anything to compare this to.”

In addition, his farming infrastructure is set up to grow soybeans, Haigwood said. It’s not an effortless turnaround to switch to corn or rice, even when weather cooperates.

“So I am going to plant soybeans,” Haigwood said, 6,000 acres. “I need the income and so I am exposed to the market here.”

“Me, personally, it’s just all the uncertainty out there,” uncertainty about what to plant and how much, said Jon Carroll, who gave a telephone interview while driving his tractor on his farm in Monroe County. Carroll, who’s been farming for 33 years, is in no position to lose time from work. With his brother, he farms 3,500 acres of soybeans, corn and rice.

Carroll likes to lock in prices early for at least half of his soybean crop, as a “safety net,” but he hasn’t been able to do that because of fluctuating prices.

“I was in agreement with what Trump did in this, and so I didn’t have a problem with it,” Carroll said. “I think China has been cheating the United States for years, and I was glad we did something.”

But now, “I’m ready to see something done,” he said. “Once you lose a market, it takes a while to come back. I’m talking about years. I’m not talking about weeks.”

Triggering Brazil

The potential for a longtime loss of the Chinese market concerns farmers. China, the world’s second-largest economy behind the United States, is home to 1.43 billion people, about 18% of the Earth’s population.

One element of China’s improved standard of living has been an increase in the demand for meat, particularly pork, which comprises 60% of China’s meat consumption. Those pigs are fed soybeans. China is the largest pork-producing and pork-consuming country in the world. And the U.S.-China trade war has been a huge boost for Brazilian soybean producers.

“I think the fear is, particularly on some of our major customers, there could be some erosion in our traditional market share and it will take some time for it to build back,” said Justice, of the Farm Bureau. “We’ve seen that with other instances over the years.”

Haigwood said he doesn’t fear a permanent loss of Chinese markets. “This is a government to government issue,” he said. “They like buying our soy and we like selling it to them. And when the issues get resolved politically, something will come back.

“But there is one thing that I fear that will never change. We have triggered our largest competitor, being Brazil, we have given them the signal to invest” in producing more soybeans.

“We have given the signal to our largest competitor to invest. Invest in new ground. Invest in technology to be more efficient and productive. Invest in their infrastructure, which we have them soundly defeated in, but how long does that last?” Haigwood asked. “Are we making a big push to invest in our infrastructure here, to move agriculture products?”

“That’s what I’m going to have to deal with next year,” he said. “And as long as I’m farming, that’s what I’ll be dealing with. We have signaled to them [Brazil], that, ‘Hey, you can have the market.’”

‘Let’s Diversify Our Portfolio’

Secretary Ward said Gov. Asa Hutchinson had “been vocal about” the impact on agriculture of the ongoing trade issues, talking with President Trump, U.S. Secretary of Agriculture Sonny Perdue and U.S. Trade Representative Robert Lighthizer.

Awareness of agriculture’s difficulties has meant “a pretty significant push for other trade agreements outside of China,” Ward said. There’s “certainly an effort to try to find other avenues for exports in general but also for agriculture exports,” he said.

And Ward cited last year’s $12 billion trade assistance package and this year’s $16 billion effort to help U.S. farmers hurt by the trade war with China. These packages include money to promote U.S. agricultural exports to other countries, “making sure they’re diversifying,” Ward said.

“The thought is let’s diversify our portfolio,” he said. “Let’s not put all of our eggs in one basket. Let’s find other markets that we can send agricultural products to.”

In addition to all the other headwinds Arkansas farmers are facing, Ward and Justice both cited the decline in U.S. net farm income, which has dropped by more than 50% since 2013.

And while the overall economy is strong, U.S. agriculture is showing other signs of strain. In May, the Federal Deposit Insurance Corp. said more farmers were falling behind on their farm loan payments. “We are seeing some emerging strain,” Diane Ellis, director of the insurance and research division at the FDIC, said. “Mostly it affects our community banks in the middle of the country.”

“There are going to be casualties of this trade war,” Haigwood said. “People are at risk. If you add a couple of bad years and now you’ve got low prices, how long can you hold on?”

He added: “It doesn’t take long for towns to dry up when the No. 1 business in Arkansas as a whole is agriculture.”

As for diversifying markets, Haigwood noted, “It took approximately 15 years of promotion and relationship-building in China before we sold the first soybeans. Yeah, we can diversify, but what can we diversify to? That takes an extreme investment.” He added, “What works best is for us to sell to the largest soybean buyer in the world.”

And as for the recent multibillion-dollar aid packages? “We don’t want aid,” Haigwood said. “We want trade.”

What would Rusty Smith say to President Trump and President Xi of China? “For the good of America’s heartland and our ag communities, they have to come to terms.” Economic pain in the farming community trickles down “to every business in these smaller communities. It hits everybody,” Smith said.

As for the Chinese people, they need the protein provided by soybeans.

“I would tell these two guys,” Smith said, “swallow some pride and let’s get this done. Let’s take the tariffs off. Let’s act like big boys and let’s get this behind us and do what’s best for our people on each side.”