President Trump has committed $12 billion to protect American farmers hurt by his trade war, setting off a political firestorm over trade policy.
But growers of soybeans — the single largest agricultural export to China, worth $12.4 billion — have largely escaped financial damage thus far, raising questions about the purpose and timing of the bailout, say economists, commodity traders and farmers.
While soybean prices have plummeted in recent months as China slapped tariffs on $45 billion of U.S. goods, the complexity of the markets where they are sold has insulated many growers from financial harm in the short-term.
“We probably don’t need [the aid] on our farm,” said Anna Balvance, who raises soybeans and cattle in northern Iowa and is expecting strong profits this season. “A lot of guys are skeptical of it. It’s not going to change the way we do business.”
Soybean growers have been cushioned by the widespread use of forward contracts that allowed many to lock in high prices last spring, and analysts predict they will be buoyed at harvest by strong global demand for soybeans.
The situation is similar for grain and oilseed crops, as well as pork, which was also hit by Chinese tariffs but enjoyed year-high prices in May and June.
“Who knows what the price would’ve been without tariffs?” said Dustin Baker, an economist with the National Pork Producers Council. “But for the most part, producers haven’t lost money yet this summer.”
To be sure, some commodities have been hurt, and China’s tariffs arrive at a time when the U.S. farm sector has been strained by consecutive years of record production and depressed prices. The European Union, Canada and Mexico have also imposed tariffs targeting U.S. agricultural exports, including pork, bourbon, cheese, apples and peanut butter.
Some farmers have also taken a financial hit from U.S. tariffs on steel and aluminum, which have increased the costs for building materials and farm equipment.
But at least to date, the overall resiliency to trade measures of America’s largest export crop speaks to U.S. global dominance of grain and oilseed production, analysts say.
And it raises questions about the logic of using payouts to shield farmers in the short term without taking measures to avoid a prolonged trade war. Many of the mechanisms protecting farmers this season will weaken next year if prices remain low.
“I know my soybean farmers might be interested in” the aid package, Sen. Christopher A. Coons (D-Del.) said during a committee hearing Thursday with U.S. Trade Representative Robert E. Lighthizer. “But they’d rather have long-term contracts than short-term payments.”
The promised aid package is the result of months of research by the Agriculture Department, officials said Tuesday.
The three-pronged approach would include direct payments to farmers, efforts to promote U.S. goods abroad and an expansion of a program that purchases surplus farm goods and distributes them to food banks. The USDA has promised aid to producers of soybeans, corn, cotton, wheat, pork, dairy and several other goods, although soybean farmers are expected to receive the bulk of the payments.
Soybean prices have slid more than 20 percent since late May, when President Trump announced tariffs on $50 billion of Chinese goods. China retaliated with stiff tariffs, sending soybean prices to a 10-year low of $8.19 per bushel at a time when record plantings and large stockpiles had already driven prices far from their 2012 pinnacle.
But because soybean farmers can sell their crop at any point in the year, it’s unlikely many have taken a financial hit on this season’s harvest, said Kevin McNew, chief economist at Farmers Business Network, a market intelligence firm.
Many farmers locked in high prices before the trade war started, using a mechanism called a forward contract, which the USDA incentivizes through some types of federal crop insurance.
In a poll of 7,000 farmers, FBN found that nearly half of this year’s soybean crop is forward-contracted, which means it isn’t subject to falling prices. Those who have not already sold their crop will wait until harvest or later.
“We’ve had a $2-per-bushel slide since June,” McNew said. “If prices don’t revert, farmers who didn’t sell anything before will face a much lower soybean price than ones who were actively selling ahead.”
Traders are optimistic, however, that soybean prices will rebound. Global demand is strong, said Arlan Suderman, chief commodities economist at the advisory firm INTL FCStone, and the United States is the world’s largest soybean producer.
Brazil, the second-biggest producer, is expected to exhaust its supply of exportable soybeans at the end of September. That, together with a recent USDA crop report that forecast this year’s U.S. harvests will be smaller than expected, has already begun boosting prices.
“The U.S. will be the only real source of soybeans in the world” by this October, Suderman said. “I would expect to see prices come up well before then.”
Grain and oilseed farmers have other cushions, as well. Many are planning to store this year’s harvest until it becomes profitable to sell, though that option is not feasible for those with no storage or large operating expenses.
Existing government farm support programs also guarantee minimum revenue for farmers if commodity prices fall below national or county averages. Those provisions paid out well over $10 billion in 2016 and will also be triggered this year, said Craig Cox, senior vice president for agriculture and natural resources at the Environmental Working Group, an advocacy organization that tracks farmer payments.
“Those two programs have been spending a ton of money as commodity prices have fallen, even before the tariff wars,” he said. “They have kicked out literally billions of dollars in the last two years.”
But there is a hidden sting for farmers if the trade war continues, Cox said. Farm price supports adjust to lower average prices over time — pushing producers further below the point of breaking even.
Crop insurance is pegged to average market prices, which means the revenue it guarantees farmers will shrink. Next year’s forward contracts may also be less favorable if soybean futures prices continue to sink.
That worries producers such as Balvance, who also works as a grain buyer for a major firm. The farmers coming through her office these days are anxious, she said — not because they’re losing money at this moment, but because they fear they will in the future.
“I’m sitting here disgusted with the whole thing,” Balvance said. “A black swan event, in commodity markets, is something that can’t be predicted. But this wasn’t a black swan event. President Trump campaigned on this.”