Stakes are high in soybean country if China adopts tariffs on U.S. agricultural exports

LAKE BENTON, Minn. – Bob Worth climbed out of his tractor last week in southwestern Minnesota to take a short break. He and his neighbors have been planting corn and soybeans from dawn to dusk to make up for lost time because of a late spring — and with yet more uncertainty about their economic future.

Now beginning his 48th season as a producer in Lincoln County, Worth is talkative and enthusiastic about the prospects for success on the 2,200 acres he farms with his son.

But he and many others in farm country have been troubled by the on-again, off-again talk of tariffs and counter-tariffs between the U.S. and China, and they worry that decades of building mutually beneficial trade relations could be wiped away. "It's in the back of your mind a lot, yeah," Worth said, referring to the threat China made early last month to impose 25 percent tariffs on soybeans, corn, pork and other commodities, after the U.S. proposed tariffs of $50 billion on Chinese goods.

President Donald Trump's administration seemed to switch gears slightly last week by announcing that it has put steps toward a trade war "on hold" while talks continue on how to reduce China's huge trade surplus with the U.S.

Worth said he just hopes that with all the back-and-forth, the leaders of both nations will find a way to work out their differences. "We don't want it to go the other way, because we can't take a major hiccup in agriculture or we're going to lose a lot more people," Worth said. "The timing is just terrible for it."

Growers are already dealing with a weak farm economy, struggling in its fourth year of low crop prices. And Minnesota is the nation's third largest producer of soybeans with $2 billion worth of exports in 2016, more than half to China.

On a national scale, one in every three rows of U.S. soybeans is exported to China, a market estimated at $12 billion annually.

It's a success story that took years to build and nurture, say farm leaders, but it could unravel quickly.

"The bigger concern is long term, because you don't want to be in the business of having your key customers question your ability to supply their needs in the future," said Mike Steenhoek, executive director of the Soy Transportation Coalition, a trade group.

Brooks Bennett, president of First Security Bank in Lake Benton, said it's too early to tell whether a tariff will be placed on U.S. soybeans, but it could drop the bottom out of crop prices. Bennett has a front-row seat on how lower farm incomes during the past four years have already softened the area's economy, affecting retail stores, vehicle sales, farm implement dealers, supper clubs, convenience stores and other businesses.

"Reducing revenue for these producers, and reducing their profit, means they just don't have the money to spend in town," he said. "It has a trickle effect. It slows everyone down."

Jim Veire, fuel distributor at BioAg Energy Services in Lake Benton, said he doesn't like the idea of tariffs because they create winners and losers, and he doesn't want to see farmers taking a hit.

"We are directly joined at the hip with agriculture," he said. "It's our lifeblood, not only us but a lot of businesses in small communities in the Upper Midwest."

That includes fuel, fertilizer and seed companies that sell directly to farmers, he said, but also the plumbers, electricians and other tradespeople who suffer when farmers don't have the disposable income to fix up their houses or build new grain bins or machine sheds.

"Agriculture is a tough business, and we've dealt with down cycles before," said Veire, "but quite frankly there's enough challenges when the playing field is level without throwing a tariff into the mix."

At the Lunch Box cafe in downtown Lake Benton, patrons don't like the idea of tariffs either. Greg Nelson, a service representative for Otter Tail Power, said between bites of pork loin and mashed potatoes and gravy that low crop prices have already put the brakes on growth in farm communities.

"We serve towns and communities and elevators and local ag services, and they're not expanding now," he said. Unless the farm economy improves, Nelson said, "There's contractors that won't get work and we're not gaining any new [electric] load."

To be sure, just the threat of a tariff has already caused Chinese buyers to halt orders for U.S. soybeans. The CEO of agricultural trader Bunge Ltd., one of the world's largest soybean shippers, confirmed in reports this month that a "big cloud of uncertainty" in the market had caused China to increase soybean purchases from Canada and Brazil at the expense of U.S. growers.

Cargill sent a five-page letter to the U.S. trade representative recently, expressing concerns about potential enactment of unilateral tariffs and investment restrictions against China and the threat of escalating tariffs that "pose significant and unnecessary harm to U.S. agricultural exports, business, communities and jobs."

"While we understand the administration's intent is to generate substantive bilateral dialogue, we are concerned that this approach will not effectively advance the goal of addressing distortive trade practices," wrote Devry Boughner Vorwerk, Cargill's vice president of global corporate affairs.

China already canceling orders

Seth Naeve, a University of Minnesota Extension soybean agronomist who tracks trade issues, said it's not surprising that China has already cut off soybean purchases from the U.S. "None of those buyers want to be on the line for buying any shipments of U.S. soybeans that could later come under a 25 percent tariff," he said. "There are such little margins in this whole business."

China typically buys most of its soybeans from South America in the spring and from North America in the fall, so recent cutbacks in shipments from the U.S. have been relatively small. But China's holding off on new orders from the U.S. for advance purchases of this fall's crop is concerning, Naeve said.

What's puzzling, he said, is that so many farmers voted for Trump despite his campaign promises to ditch trade deals with China and others, including the North American Free Trade Agreement, and renegotiate them with a tougher approach.

"My gut feeling is that farmers didn't understand what a great thing they had in all these international deals to begin with," Naeve said. Agricultural interests were at the table when the agreements were set up, he said, and for the most part were a beneficiary. "There really weren't better deals to be had, so the only outcome is going to be something worse," he said.

Joel Schreurs, who farms 1,000 acres near Tyler in Lincoln County and is a national director of the American Soybean Association, said that a tariff on soybeans, to say nothing of other products, would be "extremely detrimental" to the U.S. as a whole.

Soybean export trade has been a remarkable success story for American farmers, Schreurs said, and China needs soybean meal to feed its expanding pork and poultry operations and meet the dietary demands of its fast-growing middle class.

"They need our beans," he said. "It's disheartening that a market we've worked so long and so hard for, and spent hundreds of millions of dollars advancing it, could be swept away with a swish of a pen. Hopefully they can reach some sort of agreement here and get things resolved."

Rochelle Krusemark, a crop and livestock farmer near Trimont in Martin County, feels much the same way.

"I'm going to stay positive," she said. "Long term, I think both the U.S. and China want to work together to maintain that trade market access. We have products that we need to share."