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Free Minds & Free Markets

Trump's Trade War Will Crush American Farmers, Fuel Soy Boys

Chinese tariffs will make American soy cheaper in domestic markets, crushing farmers' profits and disrupting a $14 billion international market.

This year, for the first time in more than three decades, corn was not the most widely planted crop in the United States. But volatile trade policy emanating from the White House might cut short the reign of the new king crop, soybeans.

Farmers planted more than 89 million acres of soybeans across the United States in 2018, narrowly edging out the 88 million acres of corn that were planted, according to an annual survey by the Department of Agriculture. Soybeans cost less to plant, and their profitability has been on the rise in recent years, making them a more attractive option for farmers. A significant driver of soybeans' profitability has been increased demand in foreign markets, including China, which moved this week to slap a 25 percent tariff on American soybeans in response to the tariffs that President Donald Trump ordered on more than 1,300 Chinese-made goods.

America is the world's biggest producer of soybeans and the world's largest exporter of them. In 2015, nearly half of the U.S. soybean crop was exported.

Source: US Department of Agriculture, Economic Research ServiceSource: US Department of Agriculture, Economic Research Service

Meanwhile, China is the world's largest importer of soybeans, buying more than $14 billion of American-grown soy last year. China purchases 61 percent of total U.S. soybean exports and more than 30 percent of overall U.S. soybean production, according to the American Soybean Association, a trade group.

Disruption of that trade will be "devastating" for farmers, says ASA President John Heisdorffer. "It should surprise no one that China immediately retaliated against our most important exports, including soybeans," Heisdorffer said in a statement. "This is no longer a hypothetical."

Indeed, the consequences of tariffs became very real for soybean traders this week, even though the Chinese tariffs are not yet officially in place. Merely the suggestion of a 25 percent tariff was enough to reduce the price of soybeans by 40 cents per bushel on Wednesday. That might not sound like much, but with the 2018 crop estimated to produce 4.3 billion bushels, it means that farmers lost more than $1.7 billion in value. All that in a single day.

The consequences will continue to unfold for a while. If fewer soybeans are exported to China, farmers worry, it could result in excess supply in the domestic market, lowering prices further and hurting their bottom lines.

Despite what Trump has said, trade wars are not easy to navigate, and rarely do any of the participants win. When it comes to soybeans, for example, Chinese tariffs will hurt both American farmers and Chinese consumers, who will likely face higher prices for soybean products such as tofu, soy sauce, and hundreds of other things made with soybean oil. In much the same way that the United States relies on foreign supplies of steel and aluminum to meet domestic demand, China requires foreign soybeans to feed its huge population. This is why international trade works! Not every country has the exact right amounts of materials and goods that its population and industries desire.

But that doesn't mean there won't be winners in a possible U.S.-China trade war. On the soybean front, America's loss will likely be Brazil's gain. The world's second largest producer of soybeans enjoyed a bumper year during the 2017-18 growing season, and now seems poised to become an even more attractive source for Chinese importers if Trump and Chinese leaders continue on the current course toward a trade war. Brazil "will be licking their lips right now," Warren Patterson, a commodity strategist at Dutch bank ING Groep NV, told Bloomberg News.

Sen. Chuck Grassley (R-Iowa) said Wednesday that retaliatory tariffs against soybeans and other agricultural products were predictable. "Farmers and ranchers shouldn't be expected to bear the brunt of retaliation for the entire country," Grassley said. "It's not fair, and it doesn't make economic sense."

Photo Credit: IGOR STEVANOVIC / SCIENCE PHOTO LIBRARY/Newscom

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  • Sometimes a Great Notion||

    So we need to nuke Brazil?

  • Palin's Buttplug||

    It would be a shame if something happened to their soybean business.

  • Citizen X - #6||

    Soybeans are estrogenic, so maybe part of Making America Great Again is getting everybody's T up?

  • Citizen X - #6||

    Assuming we're playing n-dimensional chess here, and not just Wac-a-mole, the way it appears.

  • Hugh Akston||

    Badly rigged wac-a-mole has over three million illegal moles that DOJ/NBA will do NOTHING about. Very Unfair!!

  • brokencycle||

    If prices fall in the US, we'll eat more soybeans, so the reverse will happen!

  • Marcus Aurelius||

    I don't think that works the way you think it works...

  • Scarecrow Repair & Chippering||

    Yes,, tariffs and trade wars are stupid. But you do your argument no good when you pretend it's entirely ego at stake. Foreign tariffs and barriers which restrict American exports do harm American producers, and the thinking is that the only way to reduce those foreign trade barriers is threaten the same on them -- yes, tax our consumers, stupid as it is, but in so doing, it also hurts foreign producers.

    Just as American producers are howling about Chinese tariffs, so were Chinese producers howling about American tariffs, and that's what drives these tariff wars. Consumer howls are so wide spread and diluted that they have little effect, but producer howls are more targeted and likelier to get greased sooner.

    Thus it always has been.

  • Palin's Buttplug||

    The TPP eliminated tariffs on 18,000 US made products. Although it didn't include China (which the Dotard falsely claimed in a debate that it did) it would have helped US industry/IP/farmers far more than any of The Orange Idiot's hare-brained posturing.

  • NotAnotherSkippy||

    And here everyone expected you'd be happy that the gop came around to your candidates' superior economic policies.

  • Scarecrow Repair & Chippering||

    The TPP benefits were outweighed by forcing Disney IP on everybody else. I do not weep at its demise.

  • Inigo Montoya||

    Soy is estrogenic and eating too much of it, especially in unfermented form, leads to negative health consequences.

  • Hugh Akston||

    Eating too much of anything leads to negative health consequences. So thanks for the news bulletin?

  • SQRLSY One||

    I read a while ago that Europeans, when retaliating against American trade shenanigans, would be very careful to retaliate against those states that elected the evil-doing POTUS who did the dirty deeds... I can NOT recall specifics! Brains are getting old... Can't even recall if it was Team Red or Team Blue at the time...

    Are the Chinese doing this? Trumpster-to-the-Dumpster got elected by red states and lots of farmers and welfare farmers, so the Chinese are hitting the items that will hurt Trumpster-to-the-Dumpster voters the most?

    If so, good for the Chinese, although of course, trade wars do suck like all other wars...

  • Brendan||

    We get it. We do. We really, really do. You believe tariffs are harmful, unlibertarian, bad business, etc.

    I largely agree. It remains to be seen how harmful they will be, but I don't think they're libertarian or good business.

    We really, really, really, really, really, really, really don't need 6+ articles a day about how bad they are. We get it. We really do.

  • Palin's Buttplug||

    Trumpty has been a complete failure from a classical liberal standpoint.

    Besides tariffs, he has jacked up defense spending (killing the 2011 sequester), jacked up deficits, hired Sessions, hiked spending, curtailed the movement of labor, threatens allies, and is buddy-buddy with foreign jackboots.

    All I hear about is some mythical regulation he has cut (besides coal/pollution safeguards).

  • Tony||

    That (R) is a golden freaking ticket to mass forgiveness.

  • NotAnotherSkippy||

    But that (D) will keep you out of prison after you kill someone. Now that's forgiveness.

  • BestUsedCarSales||

    So, this seems like a good time to reveal this. I'm secretly Nick Gillespie, and I wanted to let you know that I talked to Chuck and Dave and we're only going to do articles that you specifically think are relevant now.

    Thanks for the feedback.

  • Brendan||

    Hey, anytime.

    I don't mind the articles and blog posts, it's just a bit interesting when we get 5-7 over the course of two days all on the same subject, and all with the same basic take.

    If the don't that sort of thing is numbing or tends to turn people off, then they're in their own little echo chamber.

  • Brendan||

    If the don't think that sort of thing is numbing...

  • Brendan||

    If the don't think that sort of thing is numbing...

  • Ken Shultz||

    Soy's main use is as animal feed, which means the price of meat is going up. OTBE, that means less meat QDD.

    So, Trump's trade war may crush American farmers, but it will also save the lives of cute farm animals.

    Every time a farm animal's life is saved, another hippie chick on California's central coast falls in love. I'm headed up there on my bike this summer, so it's all good news for me. Besides, I'm allergic to soybeans anyway.

    In all seriousness, though, I hope these tariffs are avoided. Reporting on these things as if they've already happened is probably . . . not the right thing to do.

    If anybody has a better estimate of how things are likely to go at this point than what you see here, I'd love to see your math:

    http://markets.businessinsider.....ium=ingest

    Soybeans were down 4.1% yesterday. If almost 50% of the crop were hit with a 25% tariff, you might expect them to drop more. Apparently, the market is judging it unlikely that the tariffs will actually go through. Soybeans are up 1.4% today.

    Anybody but Tony who thinks they know more than the market about this, please raise your hand so I can laugh at you.

    Futures are all positive--out to the November 2019 contract.

    http://www.cmegroup.com/tradin.....ybean.html

  • NotAnotherSkippy||

    It's too bad soy beans aren't fungible.

  • Marcus Aurelius||

    What, you don't laugh at Tony?

  • shortviking||

    Aren't farmers some of the biggest takers of tax money? Also, isn't disruption a good thing?

  • I am the 0.000000013%||

    I was thinking the same thing. Crops are about as far away from a free market as exists, or at least that is what I've been led to believe.

  • Leo Kovalensky II||

    Sen. Chuck Grassley (R-Iowa) said Wednesday that retaliatory tariffs against soybeans and other agricultural products were predictable. "Farmers and ranchers shouldn't be expected to bear the brunt of retaliation for the entire country," Grassley said. "It's not fair, and it doesn't make economic sense."

    Grassley went on to say, "make them bear the brunt of it. Those guys, over there, the ones not in the state that I represent. That would only be fair."

  • Leo Kovalensky II||

    Also, someone should point out to Grassley that for the American tax payer to guarantee subsidies and a price floor for his constituents' failing farms is "not fair, and it doesn't make economic sense."

    Ultimately, if farmers are hurt by this tariff, the American taxpayer will bear the brunt of it Grassley, you moron.

  • Finrod||

    Trade wars are the only kind of war where the guns on both sides have a 180 degree bend in the barrel so the combatants just end up shooting themselves.

  • Tony||

    Soy causes tits.

  • Marcus Aurelius||

    Man boobs, mostly.

  • I am the 0.000000013%||

    Are they in fashion yet?

  • NotAnotherSkippy||

    But I was told that tariffs only hurt those who impose them. One of these things is not like the other...

  • ChuckNorrisBeardFist||

    Reason has told us trade wars are bad. I know Tony and some other idiots only think it's bad because it's an (R) doing it.

    My question for Reason, in none of the articles have you discussed IP protections and intellectual rights? China continues to cheat and demand technology transfers as the price of doing business in China. Does any other country do this? This is part of what the 'trade war' is about but ignored here.

    I know free drugs, free borders, free trade, but Reason used to do a great job of providing information. Now it's just one sided.

  • NotAnotherSkippy||

    You forgot free shit. IP isn't real property according to the libertines at reason, therefore there's no problem.

  • Marcus Aurelius||

    Free love.

  • Ben_||

    China will just buy from foreign farmer A. And US farmers will sell to whichever non-China country was previously buying from foreign farmer A.

    It's like saying "your side of the lake is bad, I will get my water from the other side of the lake". Someone pays a little extra for longer transportation routes, but otherwise not much changes.

  • Marcus Aurelius||

    I don't think that works the way you think it works.

  • BDBerzerker||

    One of the reasons farmers are going out of business is because they are being forced to grow commodities to stay competitive instead of growing food. The big corporate farms are squeezing them out of existence. They can't compete and when they try to buck the system they get fucked to their knees in litigation by the corporate farms. God Damn Wal Mart and Monsanto and all the other conglomerates. We have gradually moved back to the monopoly mentality and it is not sustainable. When the bottom falls out we are screwed. How long will it take for them to ramp up dairies and cattle farms and other products that form the farm to market needs? Considering most small farms and dairies are already shut down because they can't compete it's going to be a hard road. We are getting more and more dependent on Mexico, China and Brazil/South America and it's not going to end well. Population control by proxy is what I see.

  • I am the 0.000000013%||

    I have an old sandwich board with an 'End is Nigh' message on it if you'd like to hang out on a corner someday.

  • Unlabelable MJGreen||

    Bravo on that headline, Boehm.

  • Echospinner||

    But "LaChoy makes Chinese food Swing American"

    That's it no more egg fu yung or fortune cookies. They want a war they got one. /s

  • FlyoverCountry||

    Good piece, but as of yet very very few of those corn or soybean acres have actually been planted. The survey published by USDA was a survey of planting intentions on March 1. Most seed is already purchased, so those acreage numbers aren't going to change a lot, but 1 or 1.5 million of them are probably pretty flexible.

    The real downside, as i see it, to tariffs, is that if China actually imposes them and then actually abides by them, they will have a lot of incentive to purchase from Brazil, and Brazil has lots and lots of arable land that can come in to production if the price warrants it.

    The Ukraine and FSU countries weren't major wheat producers until Jimmy Carter's grain embargo, now they are some of the largest exporters in the world. I worry the US could lose a similar sort of market share to Brazil.

    My two cents, anyway. As cold as it is, we may never get to plant anyway...

  • TacoVigilante7||

    "Farmers planted more than 89 million acres of soybeans across the United States in 2018, narrowly edging out the 88 million acres of corn that were planted, according to an annual survey by the Department of Agriculture."

    This is sloppy. Almost no corn or soybeans have been planted in the United States in 2018. The numbers you cite are an estimate subject to annual derision by United States farmers.

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