Area farmers ready to start spring planting amid talk of trade war
Steve Wilson was busy Tuesday morning answering frequent phone calls to his Baldwin Feed Co. requesting his fertilizer service visit fields in preparation for spring planting.
The busy phone was an indication that any uncertainty stemming from a possible Chinese tariff on grain will have little or no effect on the crops area farmers plant this spring, Wilson said.
Last week, China announced its intention to put a tariff on American grain imports, including soybeans and corn, in retaliation for the tariffs President Donald Trump said he would apply to a variety of Chinese imports.
Wilson said farmers already had made basic planting decisions before Trump’s announcement. Growers usually preorder at the start of the year the seed grain that they intend to plant in the spring.
Futures prices strong
There was a market reaction to the tariff news after the Chinese announcement, but it has bounced back, Wilson said. What has remained strong is futures markets on the Chicago Board of Trade, where futures on annual crops can be traded four years before they are harvested. The May price for old crop soybeans harvested last fall closed Monday, April 9, at $10.50 a bushel, which was only 27 cents lower than the all-time high for the crop that has been bid since 2014, Wilson said. The November 2018 new crop price for beans to be harvested in the fall closed at a strong $10.49 a bushel.
Those are futures prices and not the lower “basis” price he and other local buyers will pay for soybeans, Wilson said.
“The soybean market from the current futures standpoint is as good as it’s been for quite a while,” he said. “It’s more what is going on the current day, not what may happen with the tariffs.”
Wilson said most of the soybeans he buys are shipped to the DeLong Company at the intermodal rail facility in Edgerton, and then sold to overseas buyers. The healthy futures prices reflect that there is much in play beyond the tariff talk when it comes to grain markets.
Currently, a drought in Argentina is drastically reducing the amount of soybeans that will be harvested by what is the world’s third-largest producer, Wilson said.
The futures prices reflect the reality that many considerations contribute to grain prices, Wilson said.
Smart grain producers stay abreast of those world trends, said Dan O’Brien, K-State Research and Extension grain market economist. They also do the math when making a decision on what to plant. That math increasingly has area farmers dedicating more acreage to soybeans and less to corn.
In Douglas County, nonirrigated cropland produces an average of 45 bushels of soybeans per acre, O’Brien said. Producers need to get $8.15 per bushel to cover all the cost of production. On Tuesday, the Ottawa Coop was offering producers a contract of $9.73 per bushel on soybeans harvested and delivered in October and November to its South Lawrence elevator, O’Brien said.
Corn, which averages a yield of 145 bushels per acre in the Lawrence area, has a cheaper average production cost of $3.56 per bushel, but it also earns producers much less per bushel than soybeans. The North Lawrence October/November contract price is $3.64 per bushel, O’Brien said.
“You’re seeing a shift to soybeans because of the cost-of-production advantage,” he said.
O’Brien agrees with Wilson that talk of a trade war will have little effect on spring planting. The Chinese tariff as proposed would add 25 percent to the price of American grain entering Chinese ports. That could be nothing more than a ploy for negotiations that are scheduled to start in May.
“I would not buy the presumption (that Chinese tariffs) would be the outcome,” he said. “It seems like they are conducting negotiations in the press. There seems to be some aspect of that going on.”
Even should a trade war start and a tariff put American soybeans at a competitive disadvantage in China, it would be difficult for that country not to buy U.S. beans, O’Brien said.
“The U.S. and China have a co-dependent relationship in the soybean market,” he said. “China is the world’s largest soybean importer, and the U.S. is the world’s largest producer and exporter.”
China imports about 97 million metric tons of soybeans annually for livestock production, primarily pork, and for vegetable oil, O’Brien said. U.S. farmers produce 119 million metric tons and accounts for 42 percent of the world’s exports.
“China needs enough soybeans that they are reliant on all major producers,” he said. “All of South America produces 85 million metric tons. If they imported all that South America produces, they would still look to the U.S. to make up the difference unless they have a dynamic increase in domestic production.”
If China imported a larger share of soybeans from Brazil, the world’s second largest producer, it would create opportunities in European and other markets Brazil now dominates, O’Brien said.
“It’s called remixing the direction of flow,” he said.