UNCERTAIN HARVEST: Louisiana soybean farmers, in harvesting season, are caught in the middle of—and paying the price for—the trade dispute between China and the United States. (Getty Images)
Two months after soybean prices plunged to a 10-year low as a result of U.S. trade disputes with China, Louisiana farmers, now in harvesting season, are living in uncertainty with no resolution in sight as tensions between the two countries escalate.
What they do know: Federal aid is not a long-term answer.
West Baton Rouge Parish farmer Raymond Schexnayder recently began harvesting his 2,200 acres of soybeans, which is expected to produce some 150,000 bushels. But with prices down $2 per bushel from last year due to trade tensions, Schexnayder is looking at a whopping $300,000 loss on this year’s crop.
The U.S. Department of Agriculture announced in late August $4.7 billion in direct payments to farmers to help offset losses, with most of the aid, $3.6 billion, going to soybean farmers. The payments will amount to $1.65 per bushel on 50% of their 2018 production. There may be a second round of payments if deemed necessary, officials say.
For Schexnayder, the aid makes up less than half of his expected losses.
“It’ll help, but it won’t make you whole again,” he says.
China—Louisiana’s largest export market for soybeans—implemented a 25% tariff on soybeans and other U.S. goods in July in response to the Trump administration imposing tariffs on Chinese imports. As a result, soybean prices dropped to around $8 per bushel, down from $10 last year. Other crops, such as wheat and corn, also saw prices dip.
Concerns from farmers prompted the administration to announce a $12 billion aid package to support farmers while Trump worked on trade disputes. The bailout package has been met with some backlash in the agriculture community, as farmers have responded with calls for “trade, not aid.”
Others have welcomed the aid, but realize federal funds will not replace profits lost to trade battles. Louisiana Agriculture Commissioner Mike Strain says the aid is meant to help farmers pay off loans and prepare for next year’s crop. But farmers worry what will happen if the U.S. and China do not resolve this matter soon and prices do not rebound by next year.
“The issue would become significant if farmers cannot replant next year and we lose a sizable portion of acreage,” Strain says.
China has turned to Brazil to supply its soybeans for now, although the U.S. has still sent the Asian country some of its crop. In the meantime, Louisiana officials are working on opening new markets with other countries. But with trade disputes between China, the largest importer, and the U.S., the largest exporter, the soybean business is not the same.
“The longer trade tensions exist, it’s going to significantly affect the flow of the global soybean trade,” says Michael Deliberto, LSU AgCenter professor of agricultural economics. “Brazil does not have the ability to be the main supplier for China. They’re going to need U.S. soybeans, but the question is when?”
“The issue would become significant if farmers cannot replant next year and we lose a sizable portion of acreage.”
MIKE STRAIN, Louisiana agriculture commissioner
While the farming community in Louisiana has generally supported Trump, and given him the benefit of the doubt in his trade negotiations, their patience with his policies that impacts their livelihoods can only last so long.
“We still support the administration, but we’ve got to get these trade deals done,” Strain says.
Potentially compounding trade issues in the soybean business is the recent USDA report on soybean supply and demand released Sept. 12, which raised the forecasted national soybean yield to 52.8 bushels per acre, up from 49.1 last year.
That increase means the U.S. is sitting on a “massive supply” of soybeans right now, Deliberto says, which could further impact prices.
“Because of the size of crop coming online, you can’t expect price to go up,” he says. “Anytime supply outpaces demand by a large measure, it really chokes price down even farther. It’s going to take an increase in exports to China or other countries to get that export number up.”
The good news is that world demand for soybeans and other Louisiana agricultural commodities remains strong, according to an LSU AgCenter report in August.
Strain, recently elected to the executive board of directors for the Southern U.S. Trade Association, says Louisiana is making progress on selling products to other markets outside of China, including India and countries along the Pacific Rim. Meanwhile, the U.S. is making headway on trade deals with other countries such as Mexico.
“Global food supply is not keeping pace with consumption,” Strain says. “Bottom line, there’s going to be competition for these commodities. It behooves China to get on board.”
But Strain predicts China “will take some time” to come to a deal.
Most recently, the Trump administration and China announced additional tarrifs in mid-September, further escalating the conflict between the two countries ahead of previously announced negotiations set to take place at the end of the month.
China imports roughly $20 billion in U.S. agricultural commodities annually, and nearly 60% of the Louisiana soybean crop is sold to China.
Soybeans are a major commodity in Louisiana. Encompassing roughly 1.4 million acres, soybeans are the second largest row crop in the state, with a gross farm value of $800 million. It’s second only to sugarcane, which brings in nearly $1 billion in Louisiana.
It costs farmers anywhere between $7.20 and $9 per bushel just to produce soybeans, Deliberto says, so with prices dropping to around $8.60 a bushel amid trade tensions, farmers aren’t making enough to pay off their investments in the crop.
And farmers, which face several risks to their business, can’t operate under these circumstances for long.
“If we resolve this by January, and prices go up, it will just be bump in the road,” Strain says. “But if this continues with China, it becomes difficult for farmers to cash flow at those prices. They can only produce a product below cost for so long. That’s when the rubber hits the road. You can’t get production loans when you haven’t paid off last year’s crop.”