China aimed a direct strike at America’s heartland on April 4, moving to slap an aggressive 25 per cent retaliatory tariff against U.S. soybeans, farm country’s most valuable export to China last year, worth US$12 billion.
Over the past decade, fast-rising demand from China has fuelled a sharp rise in production of U.S. soybeans, which are set to overtake corn as the country’s most widely planted crop for the first time in 35 years. U.S. government data shows China now purchases 62 per cent of soy exports.
China has also been a major purchaser of sorghum, but an anti-dumping investigation in Beijing has slammed the sorghum trade. China’s February imports of U.S. sorghum plunged 24 per cent from a year earlier, customs figures show.
China’s swift retaliation rattled U.S. farmers, their options shrunk by the wide variety of agriculture products that have been or could be targeted by China. Doug Keesling of Kansas struggled to imagine what crops he might plant instead of soy.
Keesling said his most logical next option would typically be sorghum, but not with Chinese tariffs on top of the anti-dumping investigation, which was widely viewed as retaliation for Trump’s move to put tariffs on U.S. imports of Chinese solar panels and washing machines.
“The bigger story for me is not what am I going to plant,” he said. “It is how long can I sustain that as a farmer and continue producing food, not just for China but for the United States.”
Soybeans were among 106 U.S. products that China said it would hit with 25 per cent tariffs, less than 11 hours after U.S. President Donald Trump’s administration targeted 25 per cent tariffs on some 1,300 Chinese industrial technology, transport and medical products.
Soybean futures slid as much as five per cent on Wednesday in response to China’s move.
Struggle to survive
This year, Keesling planned to plant soybeans on 15 per cent more of his land because demand from China made it more profitable than other crops. Now he does not know what to plant.
“If they are all on the list,” of crops targeted by China, he said, “then you go into survival mode.”
Growing trade tensions make the United States “probably the least preferred supplier to China,” said Gary Blumenthal, president and chief executive at Washington-based agricultural consulting firm World Perspectives Inc. “There is a natural tension between the existing superpower and the rising power.”
The pivotal question is whether China is as dependent on U.S. soybean supplies as U.S. farmers have become on Chinese buyers. Analysts and executives at feed makers said China would struggle to replace U.S. soybean supplies, potentially inflicting financial pain on its own companies.
“There simply aren’t enough soybeans in the world outside of the U.S. to meet China’s needs,” said Mark Williams, chief Asia economist at Capital Economics. “As for reducing dependence on imports, there are a few options, but none is a magic bullet that could hurt U.S. farmers without generating costs at home.”
China has the world’s largest livestock sector and is projected to buy 97 million tonnes of soy imports in the 2017-18 marketing year, nearly two-thirds of the world’s soybean exports.
Chinese buyers are already paying premiums for soybeans from Brazil, which has expanded plantings and export infrastructure and grows a bean prized for high protein content. Brazil supplied half of China’s imports last year while the United States shipped about a third of the total, or about 33 million tonnes.
China typically buys mostly from Brazil through the spring and summer, so the impacts of tariffs or negotiations with Washington over soybeans will be less clear until the U.S. soybean harvest comes in the fall. It is already unlikely that many American farmers can alter planting plans, as they have already purchased seeds and started preparing fields.
U.S. Secretary of Agriculture Sonny Perdue sought to soothe farmers’ fears.
“I talked to the president as recently as last night,” Perdue said during a news conference in Ohio. “And he said, ‘Sonny, you can assure your farmers out there that we’re not going to allow them to be the casualties if this trade dispute escalates.’”
The White House did not respond to requests for comment.
Growing dependence on China
Surging soybean demand from China has transformed U.S. farming. In Kansas, traditionally known for growing hard red winter wheat, soybean acreage is up 28.8 per cent from five years ago and 94.3 per cent from 10 years ago. The expanding Chinese market has also convinced farmers to plant soybeans in less hospitable areas.
“In my part of the world, we were not supposed to grow soybeans,” said South Dakota farmer Lewis Bainbridge. Then “China entered into the picture.”
China is also a major importer of U.S. pork, cotton and ethanol and buys smaller amounts of corn and wheat. On April 2, China sought to increase tariffs by up to 25 per cent on 128 U.S. products, including frozen pork, corn-based ethanol, wine and certain fruits and nuts in response to U.S. duties on imports of aluminum and steel.
Illinois soybean farmer Lucas Strom said China’s tariffs confirmed his worst fears. Late last year, neighbours and friends had reassured him that Trump’s talk and tweets on trade would not hurt them because he would be loyal to the U.S. farmers who supported his campaign.
That sentiment is now changing fast, he said, with farmers talking about “fear” rather than mere “concern.”
“This is more real,” he said. “This is personal, and it’s not just farmers that this will be affecting. It’s agronomists. It’s seed sellers. It’s grain elevators — it’s everyone in our world.”
Sorghum and soy are the two agricultural commodities most dependent on Chinese buyers.
Before China announced its anti-dumping probe, U.S. sorghum exports were on track to be the biggest since 2015, led by sales to China, where sorghum is used to feed hogs and make the alcoholic beverage baijiu. Exports to China in 2017 of 4.6 million tonnes, valued at US$836 million, accounted for 80 per cent of all foreign shipments, according to USDA data.
Illinois farmer Eric Rund, who grows soybeans and corn, said he called his representatives in Congress for the first time ever last month as the trade war escalated.
“This whole thing has left everyone with uncertainty,” he said. “You don’t know what consequences are going to be from one week until the next.”