Farmers Lose Ground to Brazil in China

This article was originally published at 7:00 a.m. CDT on Wednesday, Oct. 1. It was last updated with additional information at 1:20 p.m. CDT on Wednesday, Oct. 1.

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OMAHA (DTN) -- The president of the American Soybean Association said U.S. farmers can compete against Brazil but right now he fears the Chinese market may be slipping further away.

"Every day that goes by is a day I think we are more and more at risk of losing the world's largest soy consumer," said Caleb Ragland, a Kentucky farmer and current president of ASA.

China continues to hold the line with a 34% tariff against U.S. soybeans compared to a 14% tariff on Brazilian beans. China ended September with no new U.S. soybean buys on the books.

"That's tough. It doesn't matter how good you are at producing, if the price is not in the ballpark, that really puts you behind the eight ball," Ragland said in an interview with DTN.

Chinese companies, including state-owned entities, also continue to invest heavily in Brazil and other South American countries. The U.S. permanently lost market share after the 2018-19 trade war, and that loss could deepen. "Where we are now with this current trade war, we risk losing the rest of what we have left," Ragland said.

Ragland said he recognizes larger political implications in the disputes with China, but the trade war just gives Beijing an excuse to rely more heavily on Brazil.

TRUMP ON SOYBEANS

On Wednesday, soybean futures began to rise after President Trump posted on social media that "soybeans will be a major topic of discussion" next month when he meets with Chinese President Xi Jinping. Trump also again indicated an aid package will be provided to farmers.

"The Soybean Farmers of our Country are being hurt because China is, for 'negotiating' reasons only, not buying. We've made so much money on Tariffs, that we are going to take a small portion of that money, and help our Farmers. I WILL NEVER LET OUR FARMERS DOWN!" Trump declared, and blaming Biden for failing to enforce Trump's trade deal with China.

WATCHING FOR FURTHER TALKS

Typically, 70% of U.S. soybean exports to China move from November through April. At the moment, prices are not the only issue. Chinese buyers -- much like 2018-19 -- have been told simply not to make offers on U.S. soybeans.

"They have said we're being told we cannot buy your beans," said John Newton, executive head for Terrain Ag, and a former economist for the U.S. Senate Agriculture Committee.

Seth Meyer, USDA's chief economist, said the lack of Chinese purchases will require U.S. producers to export throughout the full marketing year instead of front-loading exports in the first half of the year. "The Chinese are not buying from us, and they're only buying from the Brazilians; both we and the Brazilians now need to spread out our export program to all year," Meyer said.

Stephen Nicholson, global strategist for Grains & Oilseeds at Rabobank, said China eventually will return to the U.S. market when prices are low enough.

"If they're nothing, they are pragmatic. They will come back to the U.S., because that's where the cheapest price is going to be," Nicholson said.

Newton, Meyer and Nicholson each spoke last week on a panel at an Ag Outlook Forum in Kansas City, Missouri.

A day later, Arlan Suderman, chief commodities economist at Stone X, was on a panel at the inaugural (Barry) Flinchbaugh Forum in Manhattan, Kansas. Suderman said negotiations over rare earth minerals -- an area where China dominates -- takes precedent over "almost everything else." To reach a deal, Suderman said, "We need China and the United States in the same room and right now we are having trouble getting them in the same room for sustained talks."

Still, Suderman also questioned whether the U.S. would remain a long-term agricultural seller to China. He pointed to Chinese President Xi Jinping's goals of undermining both the U.S. economy and political stability. The two countries' different value systems will eventually lead to more clashes as Xi looks to achieve his goals, Suderman said.

"At some point we were going to lose China as a customer simply for those reasons," he said.

BRAZILIAN COMPETITION GROWS

Brazil has increased its soybean production by 52 million metric tons (1.9 billion bushels) just since 2020 when the U.S. and China ended their tariff war and signed the Phase One trade agreement.

The competition with Brazil will only continue. Brazil has millions of acres of grasslands that can continue to be converted to cropland and then produce multiple crops per year. The country also has a cheap currency that allows its producers to remain competitive.

Brazil is aggressively expanding its biofuels capacity as well, Suderman noted.

"We've heard about sustainable aviation fuel, but while we're sitting around talking about it here in the United States, Brazil has decided they are going to beat us and become the world's sustainable aviation capital."

INFRASTRUCTURE REMAINS AN ADVANTAGE

One of the problems Brazil continues to face is long wait times at ports. This could be one reason China also begins looking at buying from the U.S. again.

"That's the big advantage the U.S. has is there is a logistics issue that will move stuff out the door faster than what Brazil could do," Nicholson said in Kansas City.

U.S. railroad and highway infrastructure add to the U.S. shipping advantage, said Mike Seyfert, president and CEO of the National Grain and Feed Association, at the Flinchbaugh Forum.

"The biggest competitive advantage the U.S. has right now is the strength and the reliability and the resilience of that transportation system. But I worry that we're getting close to a tipping point if we don't make the investments we need to make in those systems compared to what we're seeing from our competitors," Seyfert said.

He pointed to billions of dollars in infrastructure going into Brazil and other South American ports. Most of that investment has been coming from China.

"There is concrete and steel going into the ground in terms of port development, railroad development, road development in Brazil around the clock," Seyfert said.

Meanwhile, locks and dams on the Mississippi River built in the 1930s continue to operate without needed upgrades. About 60% of exports go out of the Gulf of Mexico and nearly two-thirds of those commodities get to port by barges. The Bipartisan Infrastructure Law included roughly $16 billion to upgrade locks and dams, but those projects will take years.

MARKET RATHER THAN PAYMENTS

Government payments also do not make up for that lost demand.

"American farmers do not want to depend on the government for some type of assistance check in order to stay in business," Ragland said. "Those situations are a Band-Aid on a wound. They never make us profitable, they never make us whole and often they don't 100% get into the hands of those who need it most due to various issues."

China bought one-third of the U.S. soybean crop before the 2018-19 trade war. China's market share of U.S. beans has dropped to about 25% -- before being locked out of the market so far this harvest.

Looking at other prospective markets, Ragland said creating domestic markets such as sustainable aviation fuel will take years to effectively ramp up demand -- and that could focus more on corn demand than soybeans.

"I'm all for SAF and it certainly could help us, but SAF can't possible come along fast enough to fix this problem ... SAF has a lot of potential long term, but there's still a lot that has to be figured out within agriculture and within the biofuels community."

EYES ON SOYBEANS

The Wall Street Journal editorial board on Monday weighed into the "collateral damage" of soybean farmers in the trade dispute with China, noting "Whoever claimed trade wars are easy to win clearly wasn't an American farmer." The op-ed pointed out U.S. farmers and Chinese consumers both lose right now, and U.S. taxpayers could be faced with providing farmers with more financial support.

On a lighter note, DTN Political Correspondent Jerry Hagstrom wrote in his newsletter, the Hagstrom Report, about a weekend trip to Massachusetts for a theater festival.

"When I traveled here this weekend to visit friends, I expected to be asked questions about the kinds of things that concern people in a liberal, resort community: farmers markets, food stamps, conservation, programs to support small farmers, such as farm to school sales.

"But to my shock, in bars, restaurants, at a party for an artist and on the sidelines of performances at the Tennessee Williams Theater Festival, when people found out I was an agriculture reporter, they asked what the soybean farmers are going to do if they can't sell soybeans to China," Hagstrom wrote.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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