Hoosier farmers had anticipated all week that the Trump administration would impose $34 billion in tariffs on Chinese goods imported into the United States. Friday morning, the administration did just that. In return, China retaliated by putting tariffs on an equal amount of U.S. goods. Among those goods are corn and soybeans, the most common grain crops in Indiana.
“Short-term, it is definitely going to put a pinch on,” Geiger, who farms about 1,000 acres of soybeans, said of the 25 percent counter-tariff from China on soybeans.
The state’s agriculture industry had lobbied the Trump administration to take a measured approach to imposing tariffs to adjust the trade imbalance between the two countries, according to Jane Ade Stevens, chief executive officer of the Indiana Soybean Alliance, the Indiana Corn Marketing Council and Indiana Corn Growers Association.
“Obviously we are hoping that we can come to some agreements in some of these trade disputes,” Ade Stevens said. “We recognize China has not been a fair player in intellectual property disputes.”
International market
Indiana’s top ag export is soybeans, according to Christopher Hurt, agriculture economist at Purdue University.
“Soybeans, at $1.7 billion, dwarf every other category,” Hurt said. “About 60 percent of U.S. soybean exports go to China. That is a reasonable estimate for Indiana bean exports.”
While Indiana’s second-largest ag export is corn, Hurt said China only buys .2 percent of U.S. corn production. Mexico is the top destination for Indiana corn exports, he said, and that country has been threatening a 10 percent retaliatory tariff on farm products, including corn, in response to Trump’s earlier tariffs on steel and aluminum.
Hurt said the imposition of tariffs on soybeans by the Chinese will impact the price offered to Hoosier farmers.
“We expect prices to be about 5 percent lower because of the Chinese soybean tariff,” Hurt said. “A good bit of that price decline is likely to be in the market already. Bean price declines could be larger, especially in the short-run as markets adjust to reduced exports to China and some pickup to Europe and other buyers.”
Ade Stevens explained the Chinese mostly use soybeans to feed swine to meet the growing demand for pork in the nation’s food market.
“We want to sell soybeans and they are wanting to buy,” Ade Stevens said, noting a Chinese trade team recently visited the state and indicated they want to continue to buy U.S. soybeans. “They still want to be good partners, but they don’t know what the rules will be.”
Hurt expects China’s need for soybeans will mean the country will still buy beans from the U.S., even after tariffs are imposed.
“China is a massive world buyer of soybeans and they will need to buy a lot of beans from the U.S.,” he said. “This is to say that the volume that China needs cannot be purchased from the rest of the world. However, U.S. origin beans will soon be the highest priced beans for China due to the 25 percent tariff. This means China will buy all the cheaper beans they can get from South America first, and only buy the minimum needed from the U.S.”
The losers in a trade war involving soybeans are the producers and consumers, Hurt indicated.
“This is costly to the soybean farmers who take a loss of up to $3 billion per year and to the Chinese consumers with similar losses up to $3 billion per year,” he said. “The big winners are the South American soybean growers.”
Geiger is optimistic that Hoosier farmers will be able to move beyond the expected downturn in trade with China.
“China is the biggest buyer, but they are not the only buyer,” Geiger said. “If they are buying from other countries to fill their need that we can’t fill, then we are probably going to have opportunities to open markets in other countries as well, I think.”
Waiting for the news
Montgomery County in central Indiana was the state’s top producer of soybeans in 2017.
The county’s Purdue Extension Educator, Ashley Adair, said bean growers there have not been overly concerned about the tariff issue.
“There is a lot of uncertainty and a little bit of trepidation about it as well. But I did not hear a lot of concern,” she said earlier this week.
She explained that in Indiana, farmers usually halve their crops to control pests and diseases. Farmers will plant one half of their acreage with corn and the other half with soybeans, and switch those fields the next year.
The new development in the soybean industry is dicamba-resistant beans. Dicamba is a broad-spectrum herbicide that negatively impacts the growth and yield of soybeans, according to Adair. The new plants resist the herbicide, meaning farmers are now able to apply the herbicide to their soy crops to kill competing weeds and thus boost production of the bean plants.
What that means, according to Adair, is that soybean production may climb this year in Montgomery County — and across the nation.
“Those dicamba beans will result in some great yields, but it will put more beans on the market,” Adair said.
Just what the economic impact of the larger yield, when combined with the tariff, is not something Adair wanted to predict.
“It is really hard to say whether folks will be breaking even,” she said. “It is something to watch.”
A global issue
While a retaliatory tariff from China on soybeans may hurt his bottom line, Geiger said he understands why the trade imbalance with China is a concern.
“Long-term, I think our trade imbalance is something we have to get curbed,” Geiger said. “I am not sure the best tools to do that with, but at this point it appears as this is the first step.
“We have become a society of consumers and not manufacturers anymore, so the hard part is figuring out the best way to make that work but also find some equality in our trade system, too.”
Ade Stevens worries the trade war may cause other growers around the world to plant soybeans for the first time or plant more soybeans. When President Jimmy Carter imposed a grain embargo on Russia in 1980 to punish the country for invading Afghanistan, the move had a long-term negative impact on U.S. farmers, she explained.
“We became an unreliable source and Brazil decided to grow soybeans,” she said. “Now they are our top competitor.”
Ade Stevens said its not yet known if other growers around the world can, or will, increase soybean production.
As it is now, the United States still holds dominance in the world for soybean production.
“Our advantage is cost of production and infrastructure is better than most of the world,” she said. “But we are losing that edge.”
Making a living
Cost of production may remain an advantage, but with lower prices being paid for soybeans are something farmers are feeling.
“Cost of production in agriculture always drops a lot slower than the market does,” Geiger said. “Every operation is different in terms of their break-even scenario and of course yield plays a huge impact on that. But margins are very minimal at the current prices.”
Those prices dropped to around $8.34 per bushel Thursday, according to online stock prices. But after Friday’s tariff announcement prices had recovered to around $8.63 per bushel in mid-day trading, according to Nasdaq.com. In early March beans hit their high for the year at just under $11 per bushel.
Geiger said some farmers may have signed contracts at the year’s earlier higher prices and might be insulated this year from the market’s plunge due to the tariff fears.
“Depending how operations managed through that, I don’t know that we have to get real concerned at this point in the short-term,” Geiger said. “But if this were to be sustained for a long time, it will be a lot harder to manage through that. Or the cost of production is going to have to drop commensurate.”