The United States did not export soybeans to China this September amid the trade war. This is the first time since November 2018 that China declined to purchase from the US. Distrust has peaked and neither nation will rely on the other for essentials. Chinese tariffs on US agricultural goods are now around 34% when factoring in VAT and MFN duties. American farmers who heavily relied on Chinese demand are currently harvesting 4.3 billion bushels with few available buyers.
China became the top buyer of American soybeans because of comparative advantage. China moved from farms to factories in recent decades and began to rely on American agriculture. Washington did not consider the repurcussions when it weaponized trade.
This impacts the entire economy. People believe this will only impact Midwest “MAGA” conservative farmers but no sector exists in a bubble. Kansas, Iowa, and North Dakota, for example, export 70% of soybean output to China and the loss of revenue has rippled from the local economy to the state. Loan defaults and foreclosures are anticipated. Land values are plummeting. Then the federal government under the USDA must cover one-third of export-related losses. Billions in revenue have been eradicated.
China is turning to Brazil for 85.2% of soybean imports, up 29.9% YoY. Argentina removed tariffs on grains and secured 9% of Chinese soybean demand. China is holding 40 million tons of soybeans in its strategic reserves so that it cannot be used as political leverage.
The USDA believes net farm income for row crop producers will decline around 20% form last year, largely due to the loss of soybean revenue. The American Farm Bureau reported that exports to China in the first half of the year fell from 985 million bushels to 218 million on the annual with purchasing now coming to a complete halt.
Soybean prices in the US are down 40% from their three-year highs. South America is seizing the opportunity to corner the market with Paraguay and Bolivia increasing production along with Argentina and Brazil. The entire supply chain is shifting and taking capital along for the ride. We are looking at a serious issue for US agriculture if trade talks fail ahead of Brazil’s next harvest. Capital control and trade restrictions could be a possibility in the not-so-distant future.
