Tariff Realities Hit Harvest

Katie Dehlinger and Chris Clayton, Contributing Editors

Justin Topp usually puts a portion of his soybean crop in storage every year, but with cash prices below $7 per bushel, he thinks this year will be the most he’s ever stored. “They’ll be stored for a while, I’m assuming,” the Grace City, North Dakota, farmer says from the cab of his combine.

Many farmers are selling corn straight off the combine to meet their cash-flow needs and make room in storage for the bean crop, a dramatic reversal of typical harvest logistics.

China’s 25% tariff on U.S. soybeans brought trade to a halt, forcing dramatic changes to the grain supply chain in the Northern Plains. Cash prices plummeted, and some elevators simply stopped offering bids for soybeans. Most are raising storage rates, and some warn they could run out of storage space for soybeans altogether.

Topp explains that, for the past few years, soybean prices were the highest at harvest. Now, he’s unsure when he’ll be able to sell his beans without taking a loss.

Farmers who didn’t presell soybeans for harvest delivery and lack on-farm storage could find themselves with nowhere to go. Bankers worry the longer the tariff standoff lasts, the more farmers could go out of business.

“It’s going to be highly emotional,” says Rick Dusek, CHS executive vice president for country operations.

Cash soybean prices in the Dakotas range from about $6.50 to $7.50 per bushel, with basis in some areas reaching $2 per bushel below futures prices.

“In order to get this crop to break even, the price is going to have to come up a couple bucks a bushel,” Topp says, adding he needs prices of about $9 per bushel. “So, I guess if we’ve got to sit here and hold it, we’ll sit here and hold it.”

At the beginning of July, Topp thought he had sold about a quarter of his bean crop for delivery at harvest, but now, with lower yields, it looks like that will be more like 30 to 40%.

Farmers forward-contracted more soybeans than usual last spring.

“This was a year where the producers that were aggressive in their forward pricing earlier in the spring are really going to turn out much better than folks that haven’t done any preharvest marketing,” points out Nate Franzén, president of the agribusiness division at First Dakota National Bank. “The unfortunate thing is you look out, and there’s not a lot of options other than patience and trying to position yourself to wait and hope the market gives you something else, which is always a little bit stressful.”

Franzén thinks more farms will use USDA’s CCC (Commodity Credit Corp.) marketing assistance loans, even though the loan rates fall far short of the cost of production. Rates vary by county and range between $4.47 and $4.90 per bushel across North and South Dakota.

From a pure cash perspective, the 83-cent-per-bushel trade assistance payment will help offset some of soybeans’ price challenges, but it’s a short-term fix.

“It’s a Band-Aid,” Franzén says. “The producers we work with would much rather get it out of the market than have to get it from a government program or a disaster program, but it’s certainly better than not getting anything at all. That’s for sure.”

PNW SLOW GOING. October and November are usually busy months for grain elevators, with unit trains ferrying soybeans to the ports in the Pacific Northwest (PNW) as soon as farmers bring them in. “Well, this year, it’s just not going to happen because you don’t have the Chinese demand. So, we’re going to back up all these soybeans in the country,” Dusek says.

There are also larger national pride issues at stake right now than the price of soybeans. “When it comes to China, the message is very strong that this is bigger than the soybean crush industry, it is bigger than the feed industry, and it is in support of President Xi [Jinping] and this trade misunderstanding and trade war. It’s much bigger than soybeans,” explains Emily French, managing director of the trading and strategies firm ConsiliAgra.

A September trip to China reinforced for French that the optics wouldn’t look good for a buyer to go ahead and order U.S. soybeans. “The general feel is no one will take the risk to import U.S. soybeans right now,” French says. “Even if they already have the export certificate, there’s always the risk it could get rejected in port because of an SPS [sanitary or phytosanitary] issue, 1% FM [foreign matter], so on and so forth.”

Feed in China could be tight through January as China continues relying on Brazil and Argentina to fill its needs. But, China is already planning on early harvested beans in Brazil, where farmers are ahead of planting schedule and expected to bump up soybean acreage nearly 2%.

“There seems to be a very strong feeling that it will work out,” French explains. “Brazil’s going to have a big crop, and that’s just how it’s going to be. That’s a very strong message.”

SHORT ON STORAGE. With few options on where to ship soybeans, storage will become a competitive issue. “Those rates have gone up this year just simply because the value of storage is greater than it has been in quite some time,” Dusek says.

Most elevators will dedicate their covered, upright storage space to soybeans and use bunkers and ground piles for corn and wheat to manage quality.

“I think eventually there might be some elevators who say, ‘I would love to help you, but I just can’t. I don’t have the physical storage,’ ” explains Will Secor, an economist at CoBank’s Knowledge Exchange group. “Without that Chinese demand, elevators don’t really know where they’re going to be shipping those soybeans or how long they’re going to have to hold them.”

Many are considering arbitrage opportunities like selling to soybean processors in other states or shipping soybeans by train to St. Louis to be loaded onto barges.

Dusek says elevators’ biggest challenge will be to maintain enough space to handle all the corn and wheat that wants to come to market in place of soybeans. “When harvest comes to completion, we want our facilities to be full,” he continues. “So, we’re kind of trying to thread the needle, in a sense, to be full but yet stay liquid enough to serve our owners and be able to get through this harvest.”

LOOKING FOR BUYERS. Trade promotion groups are trying to encourage Asian countries, including Japan, South Korea and Vietnam, among others, to look at beans coming out of the PNW, especially because of the improved quality of the crop.

“I think it’s not such a quality spread as it used to be, so we have been working with some of those countries,” says Jim Sutter, CEO of the U.S. Soybean Export Council. “Taiwan, who hasn’t been buying beans out of the Pacific Northwest for 10 years, maybe more, has recently made several purchases out of the PNW. So, we need to see that happening, even though Taiwan’s certainly not going to replace China. But, if we put enough of those countries together over there, the markets do their thing. If markets get a little cheaper there as it becomes a better value, more countries will start taking PNW beans.”

Sutter also notes Argentina is exporting soybeans to China while importing U.S. beans to meet domestic demand. That could also happen with a larger share of Canada’s domestic soybean crop in western provinces going to Asia, while Canadian buyers bring in U.S. beans for domestic crush.

Tariffs affect not just commodity beans but also organic, food-grade soybeans, which make up about 6% of production in North Dakota in the state. China also traditionally is the largest market for those food-grade soybeans, points out Simon Wilson, executive director of the North Dakota Trade Office.

“We’ve been able to get over the shock value of those initial deliveries that were canceled and make up for those--sometimes at a loss. Going forward, the challenge is with the new crop coming off; and this next year, there’s only so much demand, and where are the rest of the beans going to go?” Wilson says.

Canada also is a large grower of food-grade soybeans, and those growers appear ready to reap the rewards, Wilson explains. If Canadian food-grade beans are going to China, that ideally will open up some other markets for the U.S. to step in, he adds.

STUDY INFRASTRUCTURE. Mike Steenhoek, executive director of the Soy Transportation Coalition, always has an eye out for infrastructure improvements. With commodities in a pinch going west, Steenhoek says one of the ways the federal government can help farmers is to improve long-term competitiveness with targeted infrastructure investments.

He and others are advocating for the Army Corps of Engineers to dredge the Lower Mississippi River to 50 feet, hitting a depth that would allow bigger Panamax ships to steer into the Lower Mississippi. Doing so would translate into improved basis for interior states near the major export waterways. It wouldn’t make up for all the lost exports, but it would improve basis for soybeans alone by more than $450 million a year, according to a Soy Transportation Coalition study.

“The closer you are to the river, the more efficient your supply chain is, the more narrow your basis is,” Steenhoek says. “It is a specific investment the government can make that would have a specific benefit for farmers in the interior of the country.”

Storage Considerations For Soybeans

By: Russ Quinn, DTN Contributor

Shane Stutzman is a grain bin dealer for Hynek Construction, located in Friend, Nebraska. If there’s one thing he knows, it’s grain storage. He explains that what farmers typically do incorrectly when storing soybeans is they start the fan to cool them down without monitoring the air’s relative humidity and temperature. Stored beans absorb moisture and dry out much easier than corn just like they do in the field, he explains.

He uses the example of a 10,000-bushel bin with soybeans stored at 12% moisture to illustrate the point. Using an overdrying net-loss formula, if the farmer runs the fan too long and dries the beans down to 9% moisture, it results in a loss of $2,250 in shrink plus the expense to run the fan, he says.

Stutzman also says green pods mixed in with stored grain can cause issues.

Farmers may want to harvest soybeans at 12 to 13% moisture so they can avoid shrink issues when put in the bin. He warns, however, that soybeans may contain quite a few green pods at that moisture. If the bin doesn’t have a spreader, the pods tend to sift out of the beans and slide to the walls, where they quickly rot because of the high moisture content, Stutzman adds.

“Rotting pods along the bin wall is very hard on bins, and they fall off in big clumps, plugging sumps as the bins are unloaded,” he points out. “The best remedy is to use a grain spreader.”

Stutzman says grain spreaders in new, larger grain bins are not popular because they slow down the filling of the bin. However, some spreaders handle 4,000 to 10,000 bushels per hour, he explains.

Storing any grain also requires producers to keep a watchful eye for pests. The general rule is the longer grain is stored, the greater the chance of an infestation.

DTN entomologist Scott Williams says there also are pests such as moths and beetles that will feed on all types of stored grain. Soybean-specific pests include various bean or seed weevils.

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