Amid China's worsening trade-war fueled economic slide, the Communist country's April decision to slap a 25% tariff on imports of US soybeans has remained one of its most rewarding retaliatory maneuvers. So far, at least, the food-price inflation that many feared would follow hasn't materialized - while the plunge in soybean purchases (imports to China fell 94% between the beginning of September and mid-October) has helped maximize the pressure on Trump-supporting farmers in North Dakota, Iowa and across the US farm belt.
Still, for China, targeting soybeans was essential if it wanted the agricultural tariffs to have any real impact, as the chart below clearly illustrates.
Analysts had worried that Chinese pork farmers would struggle to find another source of soybeans, causing prices to skyrocket. That hasn't happened, as other soybean producers (who process the oilseed into food for their hogs) like Brazil, Argentina and now Russia have helped pick up the slack. What's more, the transition has been relatively fluid. Meanwhile, in the US, soybean prices have fallen $2 per bushel over the past two months. For US farmers, the timing on China's tariffs couldn't have been worse, as Chinese demand started to level off just as US production reached record highs.
And even as the trade war shows no signs of letting up (though markets are perhaps naively optimistic about Trump's upcoming meeting with President Xi on the sidelines of the G-20 later this month), futures traders are hoping that demand will have rebounded (or that farmers will have the good sense to cut production) by this time next year, when a rebound has already been priced in. Many are hoping that prices will rise if the Trump-Xi trade talks yield even the slightest sign of progress. But seeing as they have few good options, American farmers are choosing to try and wait it out.
According to Bloomberg, American farmers are storing more soybeans than ever before. Storing soybeans isn't easy, as farmers in North Dakota are quickly learning: The slightest exposure to moisture can cause the crops to quickly rot, transforming the beans into a slick blackish mush with the consistency of mashed potatoes and the stench of roadkill.
Still, with farm profits down in four of the last five years, many farmers have no good options.
For some farmers, there is little choice but to keep their harvest. Millions of bushels have nowhere to go. Terminals in Portland, a key outlet in the Pacific Northwest to ship to China, are rarely offering bids. Supplies are backed up at terminals and elevators, even as cold, wet weather in North Dakota has left many acres unharvested. The country’s soybean inventories are expected to more than double to about 955 million bushels by the end of this crop year, according to the USDA.
Iowa grower Robb Ewoldt, who’s been farming since 1996, is storing most of his soy for the first time in about 15 years. His crop usually floats down the Mississippi River, about a half mile from his fields, on barges for export through the Gulf of Mexico to China and other countries. This year he’s stashing beans in his silos, making room for them by selling or storing his corn in commercial storage, to await higher prices.
"It’s probably more advantageous to store this year than any year in the past," he said.
Given that silo capacity is tight, some farmers are experimenting with new methods for storing their beans, like piling them on the ground or stuffing them into large bags. Others are stuffing their beans virtually anywhere they can find space, including tool sheds and caves.
Space for all the extra soy is tight. That’s leading to some rarely taken measures, such as piling beans on the ground - risking their exposure to bad weather. More farmers also are stuffing them into sausage-shaped bags that can stretch the length of a football field.
"I’ve heard farmers and commercial companies putting corn and soybeans into tool sheds and caves," Soren Schroder, chief executive officer of Bunge Ltd., the world’s largest soybean processor, said in an interview last month.
The tariffs have particularly hit exports from North Dakota, where the expansion of oilseed acreage was a direct result of the growth of Chinese demand. The state plants the fourth-highest number of soybeans in the U.S. and about 70 percent go to Asia, largely because of its geographic accessibility to western ports.
In North Dakota, which has been the hardest hit by the tariffs given the massive expansion of production capacity in recent years to feed the Asian market, some farmers are planning to store their entire crop. One cooperative in North Dakota expects to store more than 2 million bushels of soybeans this year.
North Dakota farmer Mike Clemens is so in need of space that he’s breaking out a dozen and a half bins built in the 1960s to store about 45,000 bushels of soybeans, which is half his farm’s production this year. He expects to fill up his five new silos with 300,000 bushels of corn.
Sarah Lovas, a grower in Hillsboro, North Dakota, has drawn several diagrams to map out storage for her entire crop. Her current plan is to fill up her 400,000 bushels of on-farm storage with 50,000 bushels of soybeans and the rest with corn. She’s renting grain bins for soybeans from a neighbor for the first time, to store about 68,000 bushels.
"I wish I had more bins," Lovas said.
One family owned farm that pioneered the bagging technique for storing corn says it has been inundated with pleas for help by other farms.
Gingerich Farms in Lovington, Illinois, has used 300-foot plastic white bags for the last seven to eight years to store corn and soybeans. This year, the family operation has gotten as many as 10 calls from neighboring producers asking about how to use the bags, compared with one or two inquiries last year, said Darrel Gingerich, vice president of the farm.
"Corn is kind of a given," he said. "They were calling us about bagging beans."
The Illinois Department of Agriculture has been overwhelmed by requests for more storage capacity, as the state, which is the largest US producer of soybeans.
As of early October, farmers had requested storage capacity for 11.4 million bushels of soybeans, triple the level from last year.
Illinois, the largest US soybean producer, may have the biggest storage shortfall, needing as much as 100 million bushels for storing crops, said Tim Brusnahan, an analyst with agriculture brokerage and consulting firm Brock Associates.
As of the start of this month, the Illinois Department of Agriculture had received requests for 11.6 million bushels of emergency storage capacity, such as bags, nearly triple the amount from a year earlier. Requests for temporary storage such as structures with waterproof covers increased 4 percent.
While Illinois’s crops are less dependent on China demand, today’s low prices make storing the soy a better choice, Gingerich said.
"The markets tell us to store it," Gingerich said. "It’s tight, very tight."
To try to alleviate the economic pain, the Trump administration has ordered billions of dollars of subsidies for soybean farmers. It has also earmarked $200 million to help cultivate (no pun intended) new overseas markets for US soybeans. But given the rush for foreign producers to gobble up market share previously belonging to US farmers, anxieties are mounting that the US soybean industry will never recover from the tariffs. And although soybean farmers in Iowa and North Dakota stood by the Republican Party during the midterms, if the pain persists, will they look to punish "the president's folly"?