MORGAN, Minn. — Trade issues are at the forefront of so many minds in the agricultural industry. The trade dispute with China has dropped soybean demand to frustratingly low levels. Chris Pothen, CHS Vice President of Global Grain Marketing North America gave an update on global trade agreements during a presentation at Farmfest.
In his role at CHS, Pothen knows a thing or two about exporting commodities. “CHS moves 2 billion bushels worth of grain to over 60 countries globally,” Pothen said.
There was $143 billion in U.S. ag exports in 2018, in 2019, $6 billion less than that is expected due to the impact of the tariffs. “The tariffs hurt U.S. farmers, ranchers and rural communities. It changed trade flows and the price producers receive,” Pothen said. He stressed the U.S. government needs to expand market access. While other countries are growing the same crops as U.S. farmers, Pothen believes that nobody produces crops as affectively as U.S. farmers do.
The trade dispute with China has resulted in a 25 percent tariff on U.S. agricultural products. This came after a short suspension at the end of July. “The USDA Market Facilitation Program offset some losses to producers,” Pothen said. The trade negotiations are on-going, but Pothen believes there are many issues which remain unresolved.
China is currently almost exclusively buying Argentine and Brazilian soybeans. “U.S. has picked up a higher percentage of non-China global demand,” Pothen said. Argentina is a big producer of beans and is selling them to China. Argentina is buying U.S. beans, but those beans are going to Argentina at a lower price.
Brazil has ramped up their production of soybeans. As the U.S. soybean acres are down, Brazil’s acres are up. Pothen expects that if this trend continues, there’s less competition for what U.S. producers are going to plant. More will plant corn.
“China buys 85 million tons of soybeans.” The next biggest buyer is the entire continent of Europe. The soybean basis in the United States remains high because there’s no demand for the beans. The crop is stuck with nowhere to go.
Along with the trade dispute is the African swine fever — a viral disease in pigs which has quickly spread throughout China and beyond. “African swine fever is impacting Chinese protein demand.” Pothen said. It has basically taken 30 percent of China’s swine out of production.
If the United States loses China’s demand for beans, what does it mean long term? Pothen believes U.S. export competitiveness will vary by corridor with the Gulf of Mexico in a better position than the Pacific Northwest. The United States status as a reliable supplier is now in question, making it more difficult to gather more opportunities to export to different countries.
The usual flow of beans is to the west; but now they’re going on trains to St. Louis, then barges take them to the Gulf of Mexico as they are being mainly sent to South America. “It’s not the way we set up our supply chain,” Pothen said.
While all the attention is currently on the trade war with China, Pothen feels that ratifying the United States-Mexico-Canada Agreement can and should be done as soon as possible. USMCA is the second generation of North American Free Trade Agreement and deals with trade with Mexico and Canada. “Mexico is the number-one buyer of U.S. corn and wheat. It’s really important to get this deal done,” Pothen said. He hopes that congress can ratify USMCA quickly.
The United States is moving forward with one-on-one negotiations with Japan to get spring wheat into Japan and stay competitive there.
Pothen emphasized it’s not all doom and gloom on the trade front, but there remains concerns about the long-term effects the China and U.S. trade war will have on soybean production across the United States and what it will mean for the production of other crops. Pothen understands that this is a time of uncertainty for American farmers. He hopes the trade dispute with China will be resolved and export opportunities will open up. “There has to be optimism, light at the end of the tunnel.”