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Increased EU imports will not repair ravaged American soybean industry

An agreement by the European Union to purchase more American soybeans will provide only marginal relief to an industry that has been decimated by depressed prices and stockpiled product as a result of Chinese tariffs, according to several experts and farmers.

President Donald Trump and European Commission President Jean-Claude Juncker announced a broad trade agreement July 25, although they did not detail the quantity of soybeans that the EU has committed to purchase as part of the potential deal. According to negotiators, the agreement, if implemented, will help ease rising trade tensions between the U.S. and EU and increase U.S. exports of soybeans to Europe, a market where the crop also faces regulatory and other hurdles.

Chinese tariffs harming American farmers

China's decision to place a 25% tariff on U.S. soybeans and source the crop from other markets, including Brazil and Argentina, has led to stockpiled soybeans in America's heartland. In a mid-August report, the USDA estimated an ending stock of 580 million bushels of soybeans for the 2018 to 2019 crop year, an increase of 150 million bushels from the 2017 to 2018 season and nearly double the stockpile in the 2016 to 2017 season.

The U.S. is a major exporter of soybeans, projected to export 56.74 million metric tons of the crop for the year ended August 2018, according to U.S. Department of Agriculture figures compiled by Purdue University. Only Brazil was slated to export more, at 74.65 million metric tons.

Among U.S. trading partners, China is a much larger buyer of U.S. soybeans than the EU. For the 12-month period ending Aug. 31, China was on track to buy 31.7 million metric tons of U.S. soybeans — more than 7x the quantity purchased by the EU.

The EU was set to purchase 4.3 million metric tons of soybeans from the U.S. over that period, out of a total 14.1 million metric tons it buys from the world.

Christopher Hurt, a professor of Agricultural Economics at Purdue University, said in an interview that based on that data, any trade agreement between the U.S. and EU could only do so much to mitigate a reduction in the Chinese market for U.S. soybeans.

"Europe could help, but looking at the numbers, China's magnitude is just too large," the professor said.

"It won't solve the problem," Hurt said. "But, on the other hand, would it be better to have a place to sell some of the soybeans? Yes."

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The American soybean industry needs all the help it can get.

In the time since China first announced plans to target U.S. soybeans with tariffs on April 4, prices of the staple fell to as low as about $8 per bushel from approximately $10 per bushel. Monthly data released Aug. 10 by the U.S. Department of Agriculture puts the average price per bushel at $8.90.

John Heisdorffer, an Iowa soybean farmer and president of the American Soybean Association, said in an interview that he was "excited" upon hearing about the agreement between Trump and Juncker, but remained cautiously optimistic about increased market access to the EU.

"It'll help a little bit," he said. "It's hard to make up for as big of a customer as China is. But anything that we can sell to a different country with the way the situation is with China will be considerably better than what we've got."

"I don't know what this is going to amount to, but we hope it's a good customer," he added of the EU.

Barriers that exist

The scope of the deal with the EU remains uncertain, and White House Economic Adviser Larry Kudlow acknowledged on CBS' Face the Nation on July 29 that although the U.S. planned to "immediately" begin trade talks with the EU, individual European nations and private companies would have to provide the impetus to purchase more U.S. soybeans, rather than the EU as a whole.

Gary Hufbauer, nonresident senior fellow at the Peterson Institute for International Economics, believes that European leaders would have to convince large grain-importing companies to do the EU a "favor" and import soybeans from the U.S. rather than places such as Brazil.

"It's hard to see how they implement this," Hufbauer said. "They would have to lean on companies in a market economy. I just don't know how that's going to work."

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Since China imposed tariffs on U.S. soybean imports July 6, China has shifted its soybean purchases to other markets that saw a successful growing season, according to Chris Rogers, research director for Panjiva, a division of S&P Global Inc.

"China will draw harder on Brazil, Argentina and even India, leaving room in the market for American beans in other areas," Rogers said in an interview.

A potential barrier to improved EU-U.S. soybean trade is genetically modified organisms, or GMO. Rogers noted that the EU would need to deregulate its handling of GMO crops in order to allow for more U.S. imports.

According to Purdue's Hurt, 94% of U.S. soybeans are GMO, and with about two-thirds of the season's crop already planted, it would not be until next season that more non-GMO soybeans could be planted, adding that non-GMO crops are often more costly to produce than GMO.

The soybean tariffs are only one trade-related issue facing rural farmers, Heisdorffer noted, adding that the soybean industry has suffered a "triple whammy" in the ongoing trade spat with China.

Soybeans, often processed for meal, serve as the main protein for livestock, including pigs, Heisdorffer said. But that is another agricultural product that is feeling the impact of tariffs. China also imposed two 25% tariffs on pork, with Mexico adding its own 20% tariff to the American agriculture staple.

Meanwhile, Trump's tariffs on global steel imports have increased the price farmers pay for tractor and farm equipment components, further pinching their budgets, Heisdorffer said.

Negotiations on the trade agreement between the U.S. and EU are ongoing. Cecilia Malmstrom, the European Commissioner for Trade, offered on Aug. 30 to drop all tariffs on U.S. auto exports if the Trump administration did the same for European cars in the hopes of reaching an agreement, though Trump rejected that offer, telling Bloomberg in an interview that it was "not good enough." An executive working group composed of negotiators from the U.S. and EU is expected to meet in the near future in Brussels to work toward a formal deal, according to Malmstrom.

"It's a trickledown effect," the farmer said. "It's going to hit these small communities hard."