This year’s booming crop production of soybeans has now become a hindrance to U.S. farmers as their No. 1 consumer ceases to purchase the crop altogether.
On March 22, President Donald Trump signed a memorandum to raise tariffs on Chinese goods. With China being responsible for the majority of soybean consumption, U.S. soybean farmers are taking a hard hit. Prices for soybeans plummet as the global demand for the crop decreases. Playing the waiting game, American farmers try to have hope for the future of trade.
This decrease in soybean exports to China has disrupted the traditional chain of supply and demand. Maggie Roth, junior in economics, explained the basics of trade tariffs, as well as why the economy is moving in the direction it is.
“We are in a trade war and we keep placing higher and higher tariffs on each other, which is detrimental to trade,” Roth said. “The higher the tariffs, the less you trade. That’s basic economics. It’s a situation of the higher the price, the lower the demand will be.”
According to an article published in August by USA Today, American soybean prices have dropped to $8.20 per bushel from their previous price of $10.54 in April. China has shifted its soybean purchases from the U.S. to Brazil causing the U.S. to look for alternative consumers in South America and Canada.
This trade war is a U.S. attempt to take a stance against international consumers taking advantage of the U.S.
Dalton Springer, freshman in agribusiness, said he thinks the placement of tariffs was a smart move for the U.S.
“I think in the long run this decision will make a good impact,” Springer said. “It hurts our farmers now with a surplus of goods and a smaller demand, but I feel like we can find a better solution to trade than what we’re in. We import a lot of goods from China, but if we produce more of those goods within the U.S. it will help the economy in the long run by creating more jobs and increasing the [gross domestic product].”
Eric Osterhaus, agricultural consultant and vice president of Paragon Ag Advisors, said what he thinks the long-term effects will be on both the U.S. and China trade.
“I think farmers will be forced to, at some degree, change their planting intentions if in fact the Chinese continue this behavior, but the demand for soybeans worldwide will continue to grow,” Osterhaus said. “It won’t have a one-for-one effect by China reducing their demand for our particular beans. We will still sell beans to other places in the world, which will offset some of the losses.”
Osterhaus also said that if farmers are to change their growing intentions, they will most likely lean on something they are familiar with such as corn or wheat, and that these are stable demands.
Profitability of either wheat or corn is based upon the yield of potential which is specific to each growing region. Rainfall and soil types are the largest drivers of these yields.
With the ceasing of soybean purchase, China will have to look for other options to meet its needs. Osterhaus said China will increase its local growth because of their decision to stop trading with the U.S.
“I think long-term of the net affects is that China will probably look to increase their domestic soybean productions,” Osterhaus said. “China is lowering their dependence on the U.S. for their soybean consumption, they will really need to work to develop trading relations of stronger ties with other countries.”
According to agriculture.com, the U.S. government is helping farmers cope with their loss of trade by designating subsidies towards their produce in 2018. The Trump administration is planning to spend $3.6 billion during fall 2018 for the decline of Chinese consumption due to the tariffs that were set in place.
The payments made to the farmers for their harvest will be half of the producer’s total 2018 production multiplied by payment rates of $1.65 a bushel. This government payment will have a $125,000 cap, resulting in farmers potentially having a surplus of product without payment.
Osterhaus said farmers are longing for a change of trade in the near future for the sake of this year’s soybean production. Most, if not all, farmers are storing their bean production within their own facilities because the harvest has come to a close, and they are now playing the waiting game.
“Farmers are hoping that this situation takes care of itself with some sort of trade agreement within the next three to six months so they are able to move those beans at a better price,” Osterhaus said. “No one is looking for big miracles, just a change.”
Recent international negotiation aided to the hope of farmers and the future of trade. The U.S. and China agreed to a temporary truce of trade war on Sunday, Dec. 2. President Donald Trump and Chinese President Xi Jinping recognized the tension of trade and agreed to a 90-day truce. Although this meeting went successfully, it is unclear to what the future of trade will look like between the two countries.