What If Trade War Lasts Through 2020 Presidential Election?

FJR 08/10/19
If the trade war with China lasts through 2020, it could have a major impact on more than just soybeans. ( MGN )

It’s been a trying year from the start for many producers.

“We have 15 acres of soybeans here, and another field in the distance that’s about 35 acres, said Meagan Kaiser, who farms with her husband and his family in Carroll County, Mo. “That’s our soybean crop this year.”

For the Kaisers, there’s not much of a crop left to harvest this year. Only a few few fields survived this year after flood waters washed out hopes of producing much of a crop. 

“We're not really quite sure what will survive, because the growing conditions have been so tough,” Kaiser added. “We haven't been able to care for this crop in any way, because of the waters, we couldn't get to the fields.”

A struggle to plant and now a continued struggle with prices, the Kaisers are facing multiple clouds of uncertainty weighing over agriculture right now.

“This is more than a hiccup in the marketplace, especially here in Missouri,” said Gary Wheeler, Executive Director of Missouri Soybean Association. “Mother Nature dealt some bad cards this year.”

It was a perfect storm for producers, in the worst possible way. Even with more trade aid on the table this year, Wheeler fears the money won’t be enough to keep some producers afloat.

“MFP is going to be helpful, but for the ones that didn't get seed the ground, it’s not going to help,” said Wheeler. “It's unfortunate, especially for the 40 and younger, that don’t necessarily have the equity position, we are probably going to lose some of them.

Wheeler is making a plea to those feeling the financial weight: cave in to ask for help.

“We need to hear from those individuals,” said Wheeler. “How can we help them? How can we help them with low interest loans? What else can we look at as far as disaster aid?”

From Missouri to Capitol Hill, the financial troubles are evident, as the trade war with China is adding more pressure to pinched profits.

“If this trade were to continue, we'd expect that there's going be a long-term effect on the soybean market in this country,” said Pat Westhoff, an economist with the University of Missouri. “We'll have lost soybeans being planted, lower price of soybeans compared to other crops and we will continue lose trade share forever.”

Westhoff said if the trade battle with China persists through the 2020 Presidential election, it’s more than just soybean prices that could sink.

“If it becomes clear there's not going be a resolution, that's going to weigh heavily on the markets, not just the near term, but longer-term as well,” he said.

A long-lasting trade war may be in the cards. The President hinted at 2020 tariff aid in a tweet last week. Farmers responded to the news with mixed views.

 

 

The varied reactions come as many realize the trade war may have no end in sight, something Ray Starling, former Special Assistant to the President for Agriculture, said has been evident all along, with the latest tariff aid and bipartisan political support buying the President more time.

“His idea is ‘I'm going to use it, I'm going to take my time, I'm not going to get a half of a loaf,” said Ray Starling, now with North Carolina Chamber. “I think that may be surprising to our counterparts on the other side of the table, who have consistently negotiated with us and been able to close a deal that was really advantageous to them. So, I think this dragging out was very predictable.”

While the President strives to hold China accountable, market share of U.S. ag exports continues to disappear.

“$14 billion of soybeans were sold to China in the last marketing year,” said Ronnie Russell, a farmer and American Soybean Association board of directors. “That's virtually none right now, and one of the problems that they're having with China now is actually following through on their verbal commitments to buy soybeans.”

Starling said U.S. market share of U.S. ag imports into China has been dwindling for years, something the Trump Administration is trying to fix.

While soybean leaders want to see the trade war turn into a trade deal soon, individuals like Russell realize it’s not just agriculture at play in negotiations, but he fears demand destruction hasn’t been fully felt yet.

“It's kind of like a tidal wave, the earthquake has hit, but we maybe haven't really seen the fruition of the effects of what's going to happen with this,” said Russell.

Westhoff thinks the earthquake will be felt in more than just soybeans.

“When people aren't going to be growing as many soybeans in the future, that means you're going to plant more corn and other crops like that,” he said. “That means lower prices for corn, lower prices for a lot of other competing agricultural products, as well. While it's soybeans that are getting most of the attention, it has spillover effects all across U.S. agriculture.”

Even as the United States’ top soybean buyer goes dark, Kaiser, who sits on the United Soybean Board, said the industry is exploring new markets.

“It took seven years of us building those relationships before one soybean was even imported into China,” said Kaiser. “That was in the early 90s. And then by 2008, we have one in every three rows of soybeans were going to China. That's incredible how quickly that happened. And now we're looking at other countries that are having that kind of growth.”

That growth, Kaiser said, is coming from places like Thailand, Japan and the European Union.

“Collectively right now, the European Union is our number one market at this point, and I think there's a lot of hope there,” she said.

Even with the EU’s tough non-GMO stance, Kaiser thinks the potential is still there for impressive growth.

“I don't think a lot of people know this, but about 7% of our U.S. soy crop is currently non GMO, and a lot of that is used in Southeast Asia,” she said. “. So we can grow that, and I think it opens a lot of opportunities not only for non GM, but high tides raise all ships, and so as we see people diversifying and doing more of those kind of direct niche markets, that'll also help our commodity beans too.”

While a recent trade deal with the EU on beef could hint at something larger long-term, Westhoff’s concern is it will take more than just the EU to eat up the lost demand from China long-term.

“China's market is bigger or has been bigger in the past,” said Westhoff. “It'll be tough to make that up in the near term.”

The uncertainty and unpredictability showing up in commodity prices last week, but Starling thinks as other trade deals get worked out, it could restore some predictability into the marketplace.

“I think we are seeing the Trump trade policy come into enough clarity now that maybe some of those swings could be leveled out a little bit,” he said.

As producers like Kaiser continue to search for that clarity, she’s holding onto home.

“I'm more optimistic than I think I could have been had we not had something like the checkoff there that was always working in the background on these kind of things to build preference and build demand,” said Kaiser.

She hopes diversifying demand will continue to strengthen agriculture in the U.S., creating better and stronger markets in the end.

 

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