Soybean promoters shop for new markets as talks with China continue

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Christopher Walljasper/Midwest Center for Investigative Reporting

A grain buyer from Indonesia inspects soybeans at the Scoular food-grade soybean production facility in Andres, IL. (Christopher Walljasper/Midwest Center for Investigative Reporting)

In Washington D.C. Friday, President Trump announced that China and the U.S. had reached a tentative trade agreement. The announcement came at the end of a 13th round of trade talks between the two nations over 18 months.

Though the president's statement was light on details, one promise brought cautious optimism to U.S. farmers and ranchers.

Trump said the deal will include $50 billion in U.S. agricultural goods heading to China, though no timeline was mentioned.

More than 800 miles west of Washington D.C., Rich Guebert, a farmer in Ellis Grove, Illinois, hoped the rain would hold off long enough for him to finish harvesting corn.

“Normally this time of the year we’re done with the corn and we’re about halfway through with the beans,” said Guebert, who is also the president of the Illinois Farm Bureau.

Soybeans are still a week or two from harvest for Guebert’s Southern Illinois farm. But as the U.S. and China iron out the details of last week's negotiations, farmers across the country hope the $50 billion deal for U.S. agricultural commodities comes through.

“The last year, year and a half maybe, this back and forth of tariffs and retaliatory tariffs,” said Guebert, “This has been a long, drawn out affair. Soybean farmers - farmers in general, are really hoping that President Xi and President Trump can get together and find a way forward.”

Soybean exports in 2018 and 2019 dropped by nearly 891 million metric tons each year, compared to the two years prior, according to data from the USDA’s Foreign Agricultural Service.

China has increased its soybean purchases recently, promising to buy 1.5 million metric tons in the final week of September.

The tentative October agreement jettisons planned U.S. tariff increases set to have begun on October 15, but a round of December tariffs are still on the table which would tax nearly everything coming to the U.S. from China.

Even as American farmers hope the new trade deal will reopen the Chinese market to U.S. commodities, work is being done to find other countries interested in purchasing U.S. soybeans.

Expanding new soybean markets

Earlier this summer, Muliadi Widjaja, a grain buyer from Indonesia, toured the DeLong Co. grain shipping facility in Joliet, Illinois. He rolled a handful of soybeans in his hand. Leaning over to a colleague, Widjaja pointed at the marks on the small, oblong beans.

“I just wonder how to identify soybean for food-grade and for feed-grade if the farmer did not bring anything to prove it,” he explained later. “From my sight soybean for food or for feed is almost the same.”

Widjaja was one of hundreds of grain buyers from around the world who toured farms and container-loading facilities southwest of Chicago in late August.

The group joined nearly 400 trade representatives from 52 countries, including China, at the U.S. Soy Global Trade Exchange and Specialty Grains Conference, an event organized by the U.S. Soybean Export Council and the Specialty Soya and Grains Alliance, to discuss the merits of U.S. soybeans and broker new trade deals.

Grain buyers from Indonesia tour the Scoular food-grade soybean production facility in Andres, IL. (Darrell Hoemann/Midwest Center for Investigative Reporting)

Commodity promotion boards and organizations have received an additional $300 million dollars in 2019 from the USDA’s Agricultural Trade Promotion Program. That’s the smallest pool of money within the combined $28 billion dollar Trade Mitigation Programs.

Since August 2018, the Trump administration has announced two rounds of relief funding, aimed at helping farmers, ranchers and growers hurt by trade disputes with China, Mexico, Japan, Europe and other trading partners.

The USDA averaged just $68 million per year in annual trade promotion spending between 2015 and 2017, according to the USDA's 2017 budget summary.

The American Soybean Association received the largest cut of the USDA’s ATP funding, at $34.6 million. That’s half what the USDA would spend on total trade promotion in previous years.

Those funds help pay for events such as the U.S. Soy Global Trade Exchange and Specialty Grains Conference in Chicago.

These events are meant to encourage trade with new countries and grow business with existing partners. But trade deals have been slow moving.

While a new trade deal was signed with Japan on October 7, the United States-Mexico-Canada Agreement, or USMCA is still awaiting final approval by the U.S. House of representatives.

At the U.S. Soy Global Trade Exchange and Specialty Grains Conference, the president’s tariffs were the subject of many conversations, but buyers from other countries said they see the U.S. trade war with China as an opportunity to gain access to American soybeans at an affordable price.

Anand Bagaria, managing director of Nimbus Holdings, a soybean processor in Nepal, said the trade dispute with China has opened markets for his country.

“I think for us, it has worked in our favor. The U.S. market was very China-centric,” he said.

Bagaria said if the U.S. can export soybeans to a more diverse list of countries, it’s also good for American farmers.

“It’s going to stabilize their risk," he said.

Since the trade war began in the spring of 2018, U.S. soybean exports have been on a roller coaster ride.

Exports to other countries have picked up in the absence of a Chinese market, but not enough to offset the drop in demand from China.

Rough economy opens door for soybeans specialization

The price of soybeans has remained at or below the cost of production since 2014, according to the University of Illinois Extension.

The low commodity price has put a strain on farmers, who are hopeful that new countries hungry for U.S. soybeans will mean a bump in bean prices. But access to new markets does not mean an instant boost to the price of soybeans.

Poor weather and lower-than-average soybean planting and yield estimates throughout the summer should have brought a price increase, but soybean prices have remained stagnant.

One contributor to low prices is the amount of grain in storage.

Farmers have been holding onto previous years’ crop, hoping for an uptick in price before selling. There were 1.79 billion bushels of soybeans being stored on the first of June 2019, according to the USDA’s National Agricultural Statistics Service.

That’s more than four times the soybeans stored in June 2014.

In September 2018, when bins should have been clearing out to make room for new crops, soybean stocks were 376 percent higher than they were at the same time in 2014, according to USDA data.

China’s demand for grain has also waned as African Swine Fever continues to devastate its national hog herd, cutting it by half, according to research from RaboBank, a bank specializing in agricultural lending.

Even though China hasn’t been buying as many soybeans from the U.S. to feed those pigs, the reduction in international demand has kept U.S. prices low.

As the agriculture economy in America nears the end of a fifth year of stagnation, more U.S. growers are seeing an opportunity in specialized markets. Diversifying commodity corn and soybean production with food-grade, organic or non-GMO crops has been one way farmers have been able to find more profit.

“As trade has grown to be from the farm to the table, farmers are responding with what they can profit from,” said Eric Wenberg, executive director of the Specialty Soya and Grains Alliance, a trade association that promotes U.S. specialty soybeans and grain internationally.

Jeff O’Connor, who invited international soybean buyers to his farm for lunch and a tour in August, operates just under 1,000 acres outside Kankakee, Illinois.

He said he converted his farm to non-GMO and identity-preservation soybeans because he saw an opportunity to get a premium price when others were content growing commodity crops.

“I really find value in knowing that something that I'm producing is going to be valued by somebody on the other end, rather than it being just an ingredient,” said O’Connor.

He said he produced commodity corn and soybeans for many years, but he appreciates raising a crop that will be turned into food for people around the world. “It's allowed me to remain smaller in size but to be able to still keep the income level.”

He said he produced commodity corn and soybeans for many years, but he appreciates raising a crop that will be turned into food for people around the world. “It's allowed me to remain smaller in size but to be able to still keep the income level.”

Grain buyers from around the world visit Jeff O'Connor's farm near Kankakee, Illinois during the U.S. Soy Global Trade Exchange. (Christopher Walljasper/Midwest Center for Investigative Reporting)

This approach contradicts the sentiment Secretary of Agriculture Sonny Perdue shared recently that farms have to continue getting bigger to survive.

“The big get bigger and the small go out,” said Perdue October 1 at the World Dairy Expo in Wisconsin.

O’Connor’s soybeans are loaded into containers at facilities like the DeLong Co. container loading facility or the Scoular food-grade soybean production facility in Andres, Illinois.

From there, they will be shipped through the Great Lakes via container ship, bound for Southeast Asia, where they will being turned into soy-based tofu, tempeh or soy milk.

That business model works for O’Connor, who lives just 30 miles from the Scoular facility. But for some farmers, access to specialty crop processing facilities is too far.

There are currently only 409 facilities in the United States certified to handle organic soybeans, according to the USDA’s National Organic Program. Some traditional grain elevators accept specialty crops a limited number of days each month. Trucking soybeans hundreds of miles to the nearest facility certified to handle them is too expensive for some farmers.

Curt Petrich, chairman of the Specialty Soya and Grains Alliance, said farmers, especially in tough economic times, are looking for ways to be more profitable.

“When Board [of Trade] prices were high, the specialty groups had more of a challenge getting growers,” he said. “Now, with the economics of farming being pretty dismal for most producers, there is more interest in the value added, in the premium.”

Growing pains in new soybean markets

Grain buyers in places like Pakistan and Nepal visited Chicago to discuss how their countries could import more U.S. soybeans. But many countries still have challenges to overcome before increasing the amount of U.S. soybeans they can import.

Majyd Aziz, a grain buyer from Pakistan said his country has been growing its soybean imports from the U.S. since shipments to China slowed down.

But as the Southeast Asian country tries to solidify itself as a regional hub for grain used for both human consumption and animal feed, buyers like himself are running into issues both logistic and bureaucratic.

“The first problem is that your boats come in, and at times there are no silos,” said Aziz.

He said because Pakistan doesn’t have the infrastructure to support the large increase in soybeans, they keep the excess grain in piles until it can be processed. That has lead to additional fumigation to remove insects, which is costly and delays the process even further.

Aziz says the new safety and sanitation regulations from the Pakistani government have gone from five steps to more than a dozen, and are costing his company as much as $25,000 a day.

He said demand in Pakistan for soybean meal is growing, as the country increases poultry production. He envisions his country as a hub for soybean exports across Southeast Asia.

“Once we take care of the demand in the local, we will export soybean meal, made of U.S. soybean,” said Aziz. “We’ve had inquiries of sending your soybean meal, that comes to Pakistan, to Afghanistan.”

But that growth depends on building out storage infrastructure and streamlining processes that have grown cumbersome.

The long-term impact of the trade war with China

As representatives from more than 50 countries negotiated deals for more U.S. soybeans in Chicago, a group of Chinese delegates also met behind closed doors.

Since that August event, China has exported more than 2 million metric tons of U.S. soybeans. Despite the increase in shipments to China, most grain buyers from smaller markets say there is plenty of grain to go around.

“Resumption of direct exports of soybean to China from USA will not impact heavily on Pakistan,” said Aziz. He also said, should the U.S. not have the supply, South American grain will fill the void for smaller markets.

Petrich said it would actually benefit the American farmer to have more countries demanding U.S. soybeans.

“As we develop other markets, maybe we can now balance this, so when there is a tariff, it doesn’t have as big of an impact,” he said. “I think the greatest thing for soy is that there is more demand than supply, and we’re able to have sustainable prices for farmers.”

Derek Haigwood, a farmer near Newport, Arkansas, and chairman of the U.S. Soybean Export Council said if the trade war with China does continue to drag on, countries like Brazil, which compete with U.S. soybean producers, will keep building out more infrastructure and clear more land for their own soybean production.

“As this trade war continues, those investment dollars, those acres are going to go into production in South America,” he said. “More and more acres are set aside for growing soy, as China continues to purchase more soy from Brazil.”

That means more soybeans on the market and a continuation of the low prices farmers have been facing since the trade war began. Haigwood notes that, once an acre of land in Brazil is converted from forest to farmland, it’ll likely remain in production for years to come.

“These acres that are cleared will be farmed when my sons come along,” said Haigwood. “They will be competing with a higher supply of soybeans from now on, because those acres will not go away.”


Please note: This story was updated to correct the location of Rich Guebert, a farmer in Ellis Grove, Illinois. An earlier version incorrectly noted he was located east of Washington D.C.