Why are US producers betting on soy in China's trade war?

CHICAGO (Reuters) – US farmers are preparing to plant what could be their third-largest soybean crop so far, although they have failed to sell a mountain of beans from their last harvest. because of an unresolved trade war between the United States and China.

Soybeans were the most important agricultural export crop in the United States and until the trade war, China bought $ 12 billion (9 billion pounds sterling) a year from American farmers.

But Chinese tariffs have almost stopped trading, removing the biggest buyer from the market and leaving farmers with crops that they can not sell. The US government estimates that farmers will have 900 million bushels, or about $ 8 billion, of soybeans stored in storage bins last year nationwide during the next harvest.

The US government set up a $ 12 billion agricultural aid package last year to mitigate the effects of declining farmer incomes, a major source of votes for US President Donald Trump.

As the winter ends and farmers begin to plant, they will continue to plant soy despite uncertainties about their ability to sell beans to China later this year. Farmers say that there is simply no better option. (Graphic: tmsnrt.rs/2TkUDjk)

"It's hard to rotate soy because you're going to plant what else?" Said Darin Anderson, a 41-year-old farmer from Valley City, North Dakota.

An alternative, sorghum, has also been drawn into the trade war. Farmers could also increase their corn acreage, but the corn-based ethanol industry is struggling. In addition, farmers who plant corn on the same fields two years in a row must purchase additional fertilizer and fuel.

Alternative niche crops such as hemp are expensive to start and have limited markets.

"Farmers have made long-term investments, whether it's equipment or storage," said Josh Gackle, a 44-year-old farmer from Kulm, North Dakota.

"All of this is very specialized and the transition to something else requires new investments."

This means that farmers will plant soy in the hope that the trade war will end or they will be compensated by another bailout or crop insurance plan.

The US Department of Agriculture (USDA) predicts that farmers will sow 85 million acres of oilseeds this spring. This represents a decline of only 4.6% from last year and is the third largest soybean acreage in the United States.

The USDA expects soybean prices to drop in 2019 due to tariffs and increased supply. But soybean futures performed relatively well, given the market disruption caused by tariffs. The price has risen 5.3% since China imposed a 25% tariff in July. This means that many producers have made a meager profit from sowing soybeans.

"It's not a lot of sauce by any means," said Austin Rincker, a 30-year-old farmer from Moweaqua, Illinois. "But with a good harvest, we could still maintain some profitability."

Rincker is aiming for a 50/50 split between corn and soybean on his farm following a similar division in 2018. Any further increase in corn would increase his spending, he said.

Producers are also convinced that their government-subsidized crop insurance plans will mitigate the consequences if soybean prices fall.

Farmers pay their individual insurance policies, which provide a minimum price when they book sales for their crops. The federal government finances about 60% of the insurance payments.

"It's nice to know that it's there," said Art Bunting, an Illinois farmer who generally opts for plans covering 85% of expected earnings, the maximum amount offered in the framework of the plans.

The price of soybean crop insurance for 2019 was set at $ 9.54 a bushel based on February futures market activity, a rate 62 cents lower than that of February. last year. The November soybean futures contract, used to determine the price of crop insurance, fell 18 cents below this level in mid-March.

In addition to insurance, farmers were able to use the government badistance program to increase the benefits of their 2018 crop. The bulk of the program's budget was spent on soy claims. The USDA has repeatedly stated that it was a single contract.

"BLOOD BLOOD OUT HERE"

The economic future of American farmers is in the hands of US and Chinese negotiators who are striving to end the trade war, said Bob Utterback, chairman of the consulting firm Utterback Marketing.

"It's going to be bloody here in an agricultural country", without a trade agreement, he said.

The USDA expects China's annual soybean imports to decline this year for the first time since 2004. China has only registered 11.0 million tonnes of soy cargoes. exported since the beginning of the marketing year, September 1, 2018, against 28.2 million at the same time there is a year. The country's total soybean imports for the year are expected to be 6.5% lower than last year.

An outbreak of rapidly spreading swine fever reported in 28 provinces and regions has led to selective reform and a reduction in Chinese demand for hog feed. China has also been trying to increase the amount of substitute feed used in livestock rations to reduce its dependence on US imports.

But many farmers are convinced that China will have to return to the US market, because even though it is able to reduce soybean meal demand, China's soybean demand has more than tripled in the last 15 years.

And Beijing has pledged an additional 10 million tons of goodwill purchases as part of the trade talks, US officials said.

"I think the demand will continue," said Roger Hadley, a 66-year-old Indiana farmer who wants to divide his 1,000 acres evenly between soybeans and corn this spring.

"Their people have that taste in their diet."