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Dr Sarah Taber @SarahTaber_bww
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Let's talk trade & soybeans.

nytimes.com/2018/11/05/bus…
To be clear, the ND grain elevator this article talks about has a big outdoor grain pile MOST years. Archived aerial photos show the storage pad was built somewhere btwn 2006 & 2009, which fits the timeline of growing soybean production in ND. And it's generally full fall-spring.
That said: that's how grain markets work. It gets harvested all at once, then gets sold one train at a time.

This elevator, like most ND soy industry, specializes in sales to China. They're the US's westernmost soy region & can offer lowest transportation costs to Pacific ports.
Grain elevators & storage pads are full during fall. That's literally what they're there for.

The real question is whether those winter & spring trains are gonna come.
A common refrain in the industry is it doesn't matter if China's not buying from the US. That just means they'll buy soy elsewhere on the world market, leaving a big vacuum somewhere else that will have to be filled by US farmers. The math will all work out.

In theory.
But international trade doesn't work like that in real life. It's a delicate house of cards and these tariffs just kicked over the table.
Over the last 10+ years, I watched the US Soybean Export Council & American Soybean Association carefully groom the young livestock & aquaculture industries in China & prime it for buying US soybeans.

There's nothing natural or inevitable about this export market.
Let me put it this way. A lot of folks put a lot of time & legwork breathing that market into existence. They wouldn't have been hustling like that that if markets were really just caused by basic arithmetic of supply & demand.
If China were just buying soy bc of demand & arithmetic, they would *already* be buying from Brazil, Argentina, Russia, Ukraine, etc.

But they weren't. China bought US soy bc our marketing convinced an entire generation of Chinese buyers that US soybeans are the best soybeans.
"The soybean industry’s sales pitch emphasized the reliability of American infrastructure and the political stability of the United States. The message was that the Chinese could be confident that American farmers would deliver high quality soybeans."
The whole reason China opted for US soybeans over other countries' is the US soybean councils promised a reliable, high quality supply that wasn't subject to political drama the way Eastern European or Latin American supplies could be.

That value proposition is gone.
“I’ve been to China 25 times in the last decade talking about the dependability of U.S. soybeans,” said Kirk Leeds, the chief executive of the Iowa Soybean Association. By undermining that reputation, he said, “we have done long-term damage to the industry.”
Insofar as supply & demand can "magically" make things pencil out, it'll prob be by laundering soybeans.

"Some nations that grow soybeans, like Canada, are shipping their own beans to China at high prices & then buying American beans at lower prices to meet domestic demand."
This strategy is helped by how a large US 2018 soybean crop & lack of China sales have pushed US soybean prices quite low: $7-9/bu, compared the $10-15 range that soybeans have occupied for the last 10 years.

For a low margin business, this is devastating just in the short term.
In the long term, it means Chinese buyers are developing relationships with other ports that they may have never worked with before.

Those new relationships won't just go away if/when tariffs are resolved. They'll have a lot more options to to buy from than they did last year.
"Mr. Gebeke, 65 [and a family farmer running 5,000 acres in ND], recalled President Jimmy Carter’s decision to suspend wheat sales to the Soviet Union in 1979. The embargo ended two years later but, by then, the Soviets were getting more of their grain from Ukraine."
"Speaking of the soybean standoff, he said, 'They could get together tomorrow and iron this thing all out and I don’t think we’ll ever get all of our market back.'”
There was a similar situation just ~10 yrs back when beeswax prices spiked bc hobbyists got Really Into Beeswax. Industries that had been using beeswax switched to paraffin & never came back, even after beeswax prices went back to normal.
Commodity trade history is littered with the corpses of industries that thought things would just go back to normal after an interruption.

That ain't how any of this works.
Brazil's expansion into the global soybean market has been slowed by Native land rights & conservation. They're the main forces keeping the Amazon from getting clearcut & turned into a continent-sized soy plantation.
But Brazil just elected their own Trump. New president Jair Bolsonaro is all about doing exactly that- mowing down trees & replacing them with sweet, sweet soy. And Brazil's farm costs are extremely low. This is a very bad time for US soy to place games.
There's not a fixed amount of soy production in the world. If the US fools around with sales, it's not going to force the rest of the world to beat a path to our door & pay us homage until we deign to play ball.

They'll just grow it somewhere else.
"Mr. Gebeke’s wife, Debra, a retired psychologist, has returned to work at NDSU, to counsel distraught farmers. ... ND, already confronting a recent rise in suicides, [is] concerned about the impact of falling prices, particularly on younger farmers with high levels of debt."
These young farmers also weren't around to make gains during the last 10-20 years of unusually high soybean prices.

(source: macrotrends.net/2531/soybean-p…
For folks who are worried about the hollowing out of rural communities? This is huge. It's not just a "sacrificed" year or two of lost sales. It's an entire generation of young farmers getting run out before they could get started.
The cherry on the tragedy sundae is that the whole tariff showdown is an attempt to make China play nice and stop "stealing our manufacturing."

Thing is, the problem isn't that China's sneaky or amazing at manufacturing. It's that the US is really, really bad at manufacturing.
(I did a whole podcast on why the US is bad at manufacturing & how the old "we can't compete with China bc our labor costs are too high" refrain is a smokescreen for the incompetent management that our society keeps producing. farmtotaber.com/episodes/2018/…)
Are there some naughty doings in China with IP & trade secrets etc when we send our blueprints over to get made into real stuff? Sure.

And NONE OF THAT WOULD MATTER IF WE HAD OUR ACT TOGETHER ENOUGH TO MAKE OUR STUFF OURSELVES. WE DON'T. WE SHOULD BE WORRIED ABOUT *THAT.*
But it doesn't feel good to think about that. Let's just destroy a bunch of young farmers' futures instead.
A couple more thoughts to close.

"During the first six weeks of the current export year, which began in Sept, American soybean exports to China are down by about six million tons from last year, while soybean exports to the rest of the world are up by only three million tons."
"Some analysts predict China will be forced to buy more [US] beans after it exhausts other sources."

China's not going to suddenly get desperate for more soy in 3-6 months. That's when the Latin America crop comes in. And LaAtm's had plenty of notice to plant big acres this yr.
Some folks are trying to sell US soybeans to India. Bear in mind it took China 10 yrs start buying as many soybeans as it does- and China's a country that's down for rapid scale-ups. India is a completely different scenario. That lightning's not gonna strike twice.
"The Trump administration said in August that it would distribute $3.6 billion to soybean farmers to offset the decline in market prices. The subsidy rate of 82.5 cents per bushel, however, covers less than half of the losses facing North Dakota farmers at current market prices."
Anyway, those are some election day thoughts. Vote it up y'all.
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