US farmers 'nervous,' as China threat of 25 percent tariffs on soybeans could cause pain

Farmer John Duffy (L) and Roger Murphy load soybeans from a grain bin onto a truck before taking them to a grain elevator on June 13, 2018 in Dwight, Illinois. U.S. soybean futures plunged with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods.

• American farmers expressed uneasiness ahead of the White House's expected decision Friday to impose tariffs on Chinese products.
• Beijing's threat to impose a 25 percent tariff on American soybeans could be an economic blow to the U.S. heartland.
• The U.S. exports about $14 billion worth of soybeans to China, according to the U.S. Department of Agriculture.

Beijing's threat to impose a 25 percent tariff on American soybeans is causing uneasiness in the farm belt ahead of the White House's expected decision Friday to announce new duties on hundreds of Chinese products.

"I am nervous to think about the scenarios of what's going to happen if it does go into effect," said Heath Houck, a soybean farmer in Nokomis, Illinois. "In the last three to five years, with the depressed farming economy the way it is, it can certainly hamper us even further. It kind of scares me, to be honest."

The U.S. exports about $14 billion worth of soybeans to China, according to the U.S. Department of Agriculture. China buys roughly half of the U.S. soybean exports, and roughly one in three rows of soybeans grown on the nation's farms goes to the world's second-largest economy, according to industry estimates.

President Donald Trump met with trade advisors on Thursday, and the administration is expected to roll out a truncated list of Chinese products subject to duties, three sources told CNBC. Beijing previously vowed to retaliate against Trump imposing new tariffs on Chinese products.

The lion's share of the U.S. agribusiness trade to China involves soybeans, which are grown in many farm states where Trump received strong support during the 2016 presidential election. Top soybean growing states include Iowa, Illinois, Minnesota, Nebraska, Indiana, Missouri, Ohio and the Dakotas.

The American Soybean Association, which represents more than 300,000 soybean farmers, on Thursday was one of the ag-related associations that issued an "appeal to Congress" to help stop trade tariffs. Wheat and corn grower associations also supported the effort along with the Association of Equipment Manufacturers.

"After weeks of engaging with the Trump administration to gain insight into the future of trade tariffs, agriculture producers and related industries dependent on exports to China are turning to Congress for help," the agricultural groups said in a joint release.

The announcement said retaliatory tariffs by Beijing "would not only directly affect America's producers, but also tangential industries that support agriculture," including farm machinery producers. Many growers of soybeans also plant corn, wheat and other crops.

In April, Beijing threatened to slap the 25 percent tariff on the imports of U.S. soybeans. If that were to happen, it would raise the cost of American beans for Chinese buyers and make South American beans much more attractive.

"The buyers of our soybeans are assuming the worst," said soybean farmer Kevin Scott in Valley Springs, South Dakota. "The markets are very soft right now. We've lost a dollar per bushel in the last couple of weeks, and it's been pretty frustrating as a farmer."

Scott said he's already locked in his "mix" of corn versus soybeans so there's no turning back at this late stage. "Now we're quite a bit below our break-even price as far as cost of production," he said.

Chicago Board of Trade soybean futures have fallen about 9 percent in the past two weeks, and July soybeans — the most active contract — settled at $9.2725 per bushel Thursday. The contract traded in the session at its lowest point since August 2017.

"The market is worried that if we're having problems with China, the world's largest importer of soybeans and our biggest export customer, that it will cut into our export business and we're going to have more soybeans," said Ted Seifried, chief ag market strategist with Zaner Group, a Chicago-based futures brokerage.

Seifried said the large commodity funds were long on soybeans as of two weeks ago but "have run for the door in a hurry and are now starting to get a little bit short, it seems." He said the outflow from the "speculative money" has contributed to soybeans being weak.

Purdue University economists estimate Chinese soybean imports from the U.S. could plummet by as much as 65 percent if China imposes the tariffs. A study issued in March also indicated that besides U.S. economic well-being suffering from tariffs, the Chinese also would suffer.

"We know China needs the product, and we would just assume they would buy it from us rather then switch to Brazilian soybeans," said Scott.

The U.S. sold approximately 33 million tons of soybeans in 2017 to China, or nearly one-third of the beans imported by the Asian country. By comparison, Brazil shipped more than 50 million tons of soybeans last year to China and represented about 57 percent of the total imports.

The number of cargo vessels waiting to load up with Brazilian soybeans has soared nearly 60 percent compared with a year ago, Reutersreported Thursday. China acquires about two-thirds of the world's soybean trade, using most of it for soy protein to feed roughly 700 million pigs in the country or to make cooking oil.

Meantime, recent weakness in the Brazilian real currency has made the country's soybean crop more attractive. It also could encourage more Brazilian farmers to expand acreage of soybeans.

"Brazil has currency advantage because the cheaper their currency gets, the more purchasing power other countries have," said Seifried. "It makes them more attractive on a global market."