Farmers in 'stress mode' from tariffs, oversupply of commodities

FILE PHOTO: Vanessa Kummer checks the quality of their 2018 soybean crops on the family farm near Colfax, North Dakota, U.S., August 6, 2019.  REUTERS/Dan Koeck/File Photo
FILE PHOTO: Vanessa Kummer checks the quality of their 2018 soybean crops on the family farm near Colfax, North Dakota, U.S., August 6, 2019. REUTERS/Dan Koeck/File Photo

The United States and China have been locked in a trade war for more than a year, putting tariffs on each other’s imports.

The tariffs have affected Midwest farmers since China is such a large consumer of pork and soybeans, which have both been targeted. According to Reuters, China announced another salvo of tariffs on U.S. goods on Sept. 13, though it was exempting pork and soybeans, a sign of easing Chinese-American tensions before a new round of trade talks begin.

China is expected to step up purchases of soybeans, historically the most valuable U.S. farm export, which China has largely avoided buying since the trade war began last year. Exports valued at more than $12 billion in 2017 crashed by 74 percent last year, according to Reuters journalist Andrew Galbraith.

For the last year and a half, China has increased its duties on imported American pork from 12 percent to 72 percent, and on American soybeans from 3 percent to 33 percent.

Ripple effect

Charles Brown, Iowa State University Farm Management Specialist for Region 8 (including Jefferson and Henry counties), said the trade war between the U.S. and China is one of a host of factors that have put farmers in a tough spot. He said U.S. exports are down about 40 percent since the trade war began, and they are down about 90 percent to China specifically. Other countries such as Japan and Argentina have picked up a little of the slack but nowhere near all of it. Brown said Argentina had never needed to import soybeans from the U.S. before, but it did this year because China had purchased all of its soybeans. Washington County Farm Bureau board president Tye Rinner said it’s not just farmers in the Midwest who are hurting. He heard the same thing from hazelnut farmers near Portland, Oregon, whose exports to China have been caught up in the tariffs, too.

“Hopefully, the Trump Administration will pull a rabbit out of its hat with the tariff war,” Rinner said. “If you take the market away from American farmers, it is hard to get it back. We’ve lost our China market. Are we going to get it back? China is already looking to other countries. How long can they supply China with corn, beans, wheat, etc.?”

Brown said that an even bigger problem for farmers’ pocketbooks has been the excessive supply of corn and soybeans. He said yields for corn and especially soybeans have been terrific for the past five years. Unfortunately, demand has not kept up with the increases in supply.

African swine fever

On top of the problem of Chinese tariffs, China is also consuming less soybeans from the U.S. because it doesn’t need as much feed. African swine fever has devastated the country’s swine industry. Brown said it’s difficult to know how many pigs have been killed because China has not released numbers, forcing outsiders to guess. Brown said experts believe as much as 40-50 percent of China’s pigs have died from the fever. Rinner said he’s heard that figure as well, that half the country’s pork industry is gone.

“That’s a lot of pigs not eating,” he said.

That said, even with half of its herd gone, China still produces more pork than the United States. China is four times larger than the U.S. by population (1.39 billion people in China vs. 326 million in U.S.). Brown said neighboring countries such as Vietnam and South Korea have reported cases of swine fever.

“We’re trying to scrutinize imports from countries that have swine fever because it can travel in frozen meat, in feedstuffs, and can be tracked in on a person’s shoes,” Brown said. “And there is no vaccine for it. The only way to get rid of it is to kill the animal. It can last several months in a facility that it infects, so it’s not like you can liquidate [the pigs] and two weeks later fill up the facility again.”

Even if a vaccine were ready tomorrow, Brown estimates that it will take China a few years to return to its pre-swine fever pork production level.

Corn and bean prices

Brown reported that the futures market has beans going for $8.93 a bushel and corn at $3.72 a bushel. Cash prices range from $3.50-$3.80 a bushel for corn and from $8.40-$8.50 a bushel for beans. He said some companies like Cargill are offering cash prices as much as $3.80 a bushel for corn because they are eager to produce fructose and ethanol.

Brown said those prices are not very good, that farmers are selling beans at a loss and selling corn at either a break-even point or with a small profit. The huge supply combined with the falling demand have caused commodity prices to drop.

‘Stress mode’

Brown said the farm economy is in a stress mode as a result of the tariffs and oversupply of commodities.

“That’s not to say some farmers aren’t doing pretty well,” he added. “If a farmer is a bit older, without much debt, they’re still doing OK. The farmers hurting the most are those who are renting a lot of land, or who are young farmers just starting out with a lot of debt. They’re going to have trouble raising soybeans if they have any type of land costs.”

Brown said farm bankruptcies are increasing, too. The situation is not as bad as the farm crisis of the 1980s when debt for land and equipment purchases doubled between 1978 and 1984 coupled with high interest rates and low commodity prices. Brown said the debt to asset ratio is actually pretty good today, at 14 percent debt to assets. The REALTORS Land Institute announced this week that farmland values are up 0.8 percent since March, but down 0.2 percent from a year ago.

Rinner said farm equipment manufacturers have had a tough time lately, telling him business has been like “sucking pond water.”

“Nobody’s buying anything, at least that’s what I’ve heard,” he said. “There’s a trickle-down effect to that. If a farmer is not earning, they’re won’t buy a new truck or eat out at a restaurant.”