As trade war wears on, U.S. soybean farmers start to worry that China's demand won't return

Since the trade war put a stop to U.S. soybean sales to China last year, farmers have been optimistic that things will go back to normal eventually. But now they are getting more worried.

China is the world's largest market for soybeans and, after closing off purchases from U.S. farmers, it quickly turned to countries like Brazil to fill some of its needs. But no country can match U.S. production, and China imported 8 percent fewer soybeans in 2018 compared to 2017, customs data show.

Now, American producers fear the Chinese will grow so satisfied with alternatives that the country will continue to use substitutes for their soybeans down the road. They cite evidence of rising consumption of canola meal and sunflower seed meal in China.

"While long-term forecasts may still show growth in Chinese soybean demand, it may not be as strong as it otherwise would have been due to these changes," said John Griffith, a senior vice president at CHS Inc., the food and energy co-op based in Inver Grove Heights.

And with soybeans now stockpiled in the U.S., a quick resolution of a trade deal now being negotiated between the U.S. and China won't immediately help farmers.

"Even if the tariffs were lifted tomorrow, it will take time to work through the stocks of soybeans on American farms currently and then plan for a new crop of soybeans that will be planted in the not-too-distant future," said Griffith, who leads CHS's global grain business.

Wallace Tyner, an agricultural economist at Purdue University, said if the trade war drags out for another two years, "We could permanently lose soybean markets to Brazil and other exporters."

Meanwhile, one large market segment — the country's hog farmers, who use soymeal to feed animals — have trouble of their own. Pork production is down because of African swine fever, which has spread through farms in 28 of China's 34 provinces, though soymeal remains popular.

Chinese officials have argued the nation's pork industry can reduce its use of soybeans. Mu Yan Kui, an executive from Chinese soy crusher Yihai Kerry, told a soy exporters conference in the fall that China was working to cut its soymeal consumption.

Any permanent decline in Chinese demand for soybeans would affect Minnesota, where farmers in the west and northwest primarily grow soybeans for export via the Pacific Northwest.

A Chinese feed association has called on pork producers to cut the amount of soymeal in feed for pigs, said Rosa Wang, a spokeswoman for Shanghai JC Intelligence, an ag consulting firm in China, but only a small number of producers there have followed the suggestion. "Soymeal has a price advantage and pig farming margin is positive," Wang said.

She said African swine fever has had a "much, much larger impact" on consumption than any change in pig-feeding methods.

Other options for getting pigs the protein they need to grow include canola meal, sunflower seed meal, fish meal and distiller's dried grains with solubles, which are a byproduct of ethanol plants and have also been slapped with a tariff by the Chinese government.

Chinese customs data show a modest increase in imports of canola products.

Even a small shift in the feed formula would have an effect on U.S. farmers, however. China imported about 3.5 billion bushels of soybeans in 2017, before the trade war started, and 40 percent of that came from the U.S.

By contrast, Minnesota farmers produced 380 million bushels of soybeans in 2017.

Mark Nowak, a farm consultant and farmer near Wells, Minn., said he's not too concerned China will permanently reduce its demand for soybeans.

"They'll throw out things, but really when it comes to a good feed for feeding pigs, soybean meal is by far the preferred choice of a protein supplement," he said.

Wang, too, is optimistic the soybean trade will return to normal.

"The trade talk is going on well now between China and the U.S. and China promised to buy large amount of soybeans from the U.S.," she said. "If the Chinese government determines to buy, I believe the large trade volume will happen."

Adam Belz • 612-673-4405 Twitter: @adambelz