Food & Agriculture Quarterly January 2019 | Page 18

settlement would be included in USMCA is currently
unfulfilled. The EU’s wish that the United States and
the EU would begin working towards zero tariffs
and zero subsidies on non-automotive goods –
presumably made more attractive by an EU incentive
that it would purchase U.S. soybeans and liquefied
natural gas and, in the process, resolve the 232
issue – is also not progressing, although the United
States increased its exports soybeans to the EU by
251 percent compared to the same period the year
before. See Appendix on page 19.
Section 301 and soybeans
Effective July 6, 2018, President Trump imposed
a 25 percent duty on $34 billion of certain goods
originating in China, pursuant to section 301 of the
Trade Act of 1974. The primary basis for which was
China’s alleged theft of U.S. intellectual property and
Chinese government policies supporting the same.
As a result, China imposed 25 percent retaliatory
tariffs on goods equaling $34 billion. Included in the
list of goods on which China imposed its retaliatory
tariffs are U.S.-origin soybeans.
Largely due to the Chinese retaliatory action, the U.S.
government reported unit export prices decreasing
by 15 percent from May to September 2018. See
Appendix on page 19. Notwithstanding that the
volume of U.S. soybean exports to China, its largest
export market, decreased by 44 percent compared
to the January to September period the year before,
total U.S. soybean exports increased by just over
one percent in the same comparison period. See
Appendix on page 19. As supported by the data,
existing export customers, except China, are buying
more soybeans, and new country customers are
entering the market due to lower prices. The most
notable new customer is Argentina, the world’s
third largest soybean producer and a country that
imported only 250 metric tons (MT) of U.S.-origin
soybeans in 2017. Beginning in June, Argentina
imported 446,000 MT of soybeans through
September. Some experts believe that Argentina and
other countries that are responsible for increased
U.S. soybean exports are looking to take advantage
of the increased price of soybeans in China.
The Southern Hemisphere’s soybean harvest
occurs from February to May and the Northern
Hemisphere’s harvest occurs from September to
December. That means China will have to go in
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search of supply when its southern suppliers cannot
meet fourth quarter demand. That demand and
lower prices are the reason why the volume of total
U.S. exports have remained relatively stable since
China imposed its retaliatory duties.
While lower U.S. soybean prices may spur exports,
what does that mean for the U.S. soybean farmer?
According to some reports, the Chinese tariffs have
caused the market price of U.S. soybeans to fall to
$8.40/bushel. Compared to a $9.70/bushel break-
even price for producing soybeans in the United
States, that market price cannot sustain the U.S.
industry.
What’s the solution?
Caught in a situation through no fault of their own,
U.S. farmers have little short-term choice but to
continue to produce, sell and export soybeans at
prices lower than they would be without China’s
retaliation. In the long term, should the situation
remain unchanged, there are options other than
shifting soybean acreage to alternative crops.
The United States Department of Agriculture
forecasts that global soybean and products trade
should rise “rapidly” over the next 10 years.
Additionally, there are other opportunities for U.S.
soybeans that may also include new markets. For
example, high oleic soybean oil is being used to
replace some of the oil lost due to trans-fat labeling.
U.S. consumption of soybean meal is forecasted
to grow at a rate of two percent per year for the
next five years. Biodiesel uses more than five billion
pounds of soybean oil per year or about 25 percent
of U.S. production. Last, the global aqua-feed
market is growing at a rate of 10 percent per year
and soybean-protein concentrate is considered to
be essential for that growth to continue. All of the
foregoing options beg the question: can U.S. farmers
hold out until those options and others replace the
demand lost in the trade war with China? The answer,
of course, depends on the individual farmer and, as
important, the president.
Will Sjoberg is a partner and
focuses his practice on international
trade. He can be reached at
202.778.3006 or wsjoberg@
porterwright.com.