Waiting game: Farmers watching China's proposed tariff on U.S. soybeans carefully
NORTHWOOD, N.D.--Soybean farmers in the Red River Valley are closely watching how China's proposed tariff on the crop plays out, growers said. But instead of making drastic decisions, producers are waiting to see if the proposed tariff will be im...
NORTHWOOD, N.D.-Soybean farmers in the Red River Valley are closely watching how China's proposed tariff on the crop plays out, growers said.
But instead of making drastic decisions, producers are waiting to see if the proposed tariff will be imposed and how agriculture markets will react, said Jared Hagert, president of Integrated Ag Services near Northwood and an acting director for the United Soybean Board.
"There is a window of opportunity to have some pretty frank talks between the two nations," he said. "We never want to see a trade war, especially with a valued customer like China."
The Chinese government announced this week its plans to impose tariffs on U.S. products, including soybeans. President Donald Trump said Tuesday he would impose a 25 percent tariff on products from China.
China proposed a 25 percent tariff on soybeans, which likely wouldn't go into effect until the end of May, said Frayne Olson, a North Dakota State University grain marketing specialist. Whether the 25 percent is set in stone is unclear, he said.
Producers have been concerned about possible retaliation from China for several weeks as Trump began discussing his own tariffs, Hagert said. About 70 to 75 percent of North Dakota soybeans are sold to through Pacific Northwest ports, according to the Upper Great Plains Transportation Institute. Most of those beans go to China, Hagert said.
North Dakota was forecast to produce 249 million bushels of soybeans last year, according to a November report from the U.S. Department of Agriculture.
China has a need for soybeans, particularly in feeding hogs, poultry and aquaculture, Hagert said. He did note China is trying to be more self-sufficient in certain crops.
"It certainly does get your attention when soybeans are targeted because they are a crop that is needed by the Chinese," he said.
A 25 percent tariff on soybeans that are worth roughly $9 a bushel to a farmer means a $2.25 tax. To compare, the price of soybeans declined 33 cents at mid-afternoon on Wednesday, so there might be more pain to absorb. It also takes away profitability of one of the few crops that was offering any.
Some farmers may have sold more beans earlier as a countermove in anticipation of the proposed tariffs from China, and if lower prices result in the long run, it would further weaken financial situations for farmers who have been hit financially by three straight years of commodity price declines, some experts said.
Farmers who market grain in the futures markets already have accelerated their sales of 2018 soybeans, said Randy Martinson, president of Martinson Ag Risk Management in Fargo.
"Guys have been selling a little more aggressively," Martinson said.
Randy Melvin, a Buffalo, N.D., farmer who plans to plant soybeans in 2018 for the first time in several years, said he hopes President Trump will engineer an agreement on tariffs across several commodities that would not harm soybean producers.
Melvin wonders if all of the discussions so far may be a "shock" technique to get China to the negotiation table: "Is that what's happening? I don't know."
Tariffs have been proposed, but haven't gone into effect, he said. He said he's trying to "let the emotions shake out of it," and is cautiously optimistic.
Melvin said price declines so far have been dramatic but not unprecedented. He has marketed two-thirds of his 2018 soybeans, but that's been largely been an "economic decision," driven by acceptable profit margins.
Bill Hejl, a farmer from Amenia, N.D., said the conflict will hurt soybean farmers, and then banking and other ag input suppliers and related businesses.
"You can't scrimp enough to make a profit and yet you're going to plant a crop," Hejl said. Soybeans have been a crop that offered some profit potential, but now, he said, that's in question.
More certain about the effect was Cargill Inc., the Minnesota-based grain marketing powerhouse. The company issued a statement about the proposed tariffs on Wednesday: "We are deeply concerned over the escalated trade tensions between the United States and China. " Hagert said farmers in the northern Red River Valley are watching the markets closely before they make any big decisions.
"Right now, I haven't heard of anyone making any drastic changes," he said when asked if producers are re-evaluating what to plant and how much.
There is a silver lining, Hagert said. Soybean producers could look to expand into other markets around the world, including in developing countries.
"We'll have the opportunity to not only to continue our good work in China but to also take stock of other soybean markets internationally to see if we can identify other areas that are underserved," he said. "That is something we do all of the time anyway, but it brings it into a much sharper focus when there is a proposed tariff."