Farmers Built a Soybean Export Empire Around China. Now They’re Fighting to Save It.

The U.S. Farm Belt is fighting to prevent an industry nightmare — the loss of its best customer for its biggest export.

The customer is China and the export is soybeans, of which the U.S. shipped $21 billion abroad in 2017, far more than anything else farmers grow. That marked a tripling in two decades, the fruit of a sweeping effort, by nearly every arm of U.S. agriculture, to build a once-obscure crop into a blockbuster.

Then last year, sunk by a bitter trade dispute, American soybean exports to China plunged 74% by volume. Brazil raced to fill the gap, while prices paid to U.S. farmers recently slid to a seven-year low.

This pain explains why Jim Sutter was having tea at the Beijing headquarters of one of China’s biggest grain traders one day in April. Mr. Sutter, who grew up on a Colorado farm and is chief executive of the U.S. Soybean Export Council, is part of a cadre of industry leaders who are trying everything they can think of to save U.S. agriculture’s relationship with China.

Mr. Sutter’s mission was simple — to reassure Chinese buyers that U.S. farmers bear them no ill will and are eager to resume doing big business if the trade fight ends. His hosts at the Chinese grain giant agreed that it would be good to get trade back on track, according to Mr. Sutter.

Soybeans have factored into trade negotiations: Prior to a trade-dispute truce reached last weekend, the Trump administration said China bought 544,000 metric tons of U.S. soybeans just before President Trump and Chinese President Xi Jinping met on the sidelines of a conference in Japan. Mr. Trump, who draws strong support from rural America, has called farmers patriots for making sacrifices so the U.S. can work to improve its trade position vis-a-vis China.

The agreement to resume trade talks included a pledge by China to start buying large amounts of American farm goods, Mr. Trump said. Still, retaliatory Chinese tariffs on U.S. soybeans remain in place, along with the peril to farmers of billions of dollars in lost Chinese sales.

“We must have this market,” said Derek Haigwood, an Arkansas farmer and chairman of the export council, who accompanied Mr. Sutter on an earlier visit to Beijing. “You can’t produce another China, at least not overnight.”

Mr. Trump first imposed tariffs on foreign steel and aluminum in the spring of 2018 in a move aimed especially at China, where overproduction had driven a global glut that hurt U.S. producers. Other measures followed, such as duties on Chinese goods ranging from seafood to handbags — an effort to remedy a trade imbalance and stop what the administration sees as unfair Chinese practices.

China hit back, affixing tariffs to various U.S. agricultural products. Twenty-five percent tariffs on American soybeans took effect in July 2018 and sent U.S. soybean prices falling.

Farmers, in fighting to hang onto the Chinese market, are pressing the administration to settle the dispute, pursuing direct channels to Chinese buyers and seeking to address those buyers’ complaints, including foreign material like stems in soybean shipments.

Next month, the Soybean Export Council will host a delegation of Chinese buyers during a weeklong trade exchange in the U.S. Buyers from China will join those from dozens of other countries on visits to Illinois grain farms and at meetings at a historic Chicago hotel, including speed-dating-like sessions designed to match U.S. soybean exporters with interested customers.

It has been four decades since American farmers first set their sights on China. They opened a Beijing office in 1982 to spread the word about U.S. soybeans, long before China began its drive to modernize and join the world’s economic and trading elite.

Some farmers thought their leaders were wasting money, said James Lee Adams, a former president of the American Soybean Association. But in the mid-1990s, a shift in China’s food policy opened doors. China committed itself to becoming self-sufficient in the production of certain grains, while setting no such goal for soybeans.

The oilseeds, however, were growing in importance as China’s burgeoning middle class developed a taste for pork and poultry, fed partly with soybean meal. Before long, demand from China for soybeans was rising 10% a year.

Rushing to meet it, American farmers shifted millions of acres away from more traditional crops such as wheat. Acres planted to soybeans, a rarity in U.S. fields a century ago, increased 43% between 1995 and 2018 while wheat acreage fell 31%, according to USDA data.

Last year, U.S. farmers planted soybeans on more than 89 million acres, an area roughly the size of Montana. That was more than the land planted to corn, long Midwestern farmers’ crop of choice.

Seed companies, grain traders, railroads and other businesses have all been part of the soybean-industry buildup — investing heavily, rolling out new varieties and adding rail capacity to ferry crops to market.

Monsanto, now owned by Bayer AG, created a large seed and herbicide business with a heavy focus on soybeans. Seed-corn producer DuPont Pioneer built dozens of soybean-focused research centers and seed-production facilities, said Paul Schickler, who as president helped develop the Iowa company’s soybean business over many years. It now is part of Corteva Agriscience Inc., a spinoff from the merger of DuPont Co. and Dow Chemical Co.

The seed companies developed soybean varieties suited to a wider swath of climate and farmland. The crop spread across traditional wheat-growing states in the Great Plains such as North and South Dakota.

Railroads expanded service from the upper Midwest to the Pacific Northwest’s ports, which in turn devoted hundreds of millions of dollars to boost farm-commodity shipments eastward. In the past five years, BNSF Railway Co. has invested over $6.1 billion in its northern corridor, adding or repairing more than 30,000 miles of track and replacing nine million railroad ties.

Commodities giants such as Louis Dreyfus Co. and Cargill Inc., as well as other companies, have spent at least $518 million along the Pacific Northwest’s Columbia River building new terminals, increasing capacity or upgrading rail facilities. The Soybean Export Council says farmers themselves have spent $135 million to develop the Chinese market, through mandatory fees and other programs.

During a January trip to Beijing, Messrs. Haigwood and Sutter extolled America’s export infrastructure and even argued that American farmers use more-sustainable growing practices than Brazil, where agriculture has been blamed for widespread deforestation. “Look, they’re cutting down trees and we’re planting ours,” Mr. Haigwood says he told Chinese executives.

Mr. Haigwood said Chinese buyers were cordial and listed ways U.S. farmers could improve their service, including reducing plant debris in soybean shipments.

Before the U.S.-China trade dispute broke out, U.S. agricultural-firm executives who studied China’s rapid economic growth and shifting diet thought nothing would alter “the economic engine of China that was driving consumer demand,” said Mr. Schickler.

Since the start of the tensions, soybean farmers and their industry leaders have traveled to Washington to urge the Trump administration to resolve the trade fight. They argue that farmers who have struggled with a long slump in income can’t withstand another year without access to their most important foreign market.

Joe Steinkamp, an Indiana farmer and a director of the American Soybean Association, brought such a message to a recent meeting with Gregg Doud, chief agricultural negotiator for the Office of the U.S. Trade Representative. Mr. Steinkamp said he expressed concern about destroying export markets for younger farmers who are struggling with debt loads or access to credit.

“We don’t want the next generation to be scared away from agriculture,” Mr. Steinkamp said, on what was his third trip to Washington since Chinese tariffs took effect. “Markets don’t just come back.”

Cargill weighed in with a June 17 letter to U.S. Trade Representative Robert Lighthizer, protesting the Trump administration’s threats to add new tariffs on some $300 billion in Chinese imports. Cargill said it worried that a new tranche of U.S. tariffs “could cause trade escalations that will damage the U.S. agricultural sector, diminish America’s global competitiveness, and harm our country’s long-term economic growth.”

The Office of the U.S. Trade Representative didn’t immediately respond to a request for comment.

To help offset the damage from China’s retaliatory tariffs, the Trump administration earlier this year rolled out a second aid package for farmers, pledging $16 billion in financial support. The first package, announced last year, allocated $12 billion to help them.

Because two main crops, soybeans and corn, dominate the U.S. farm economy, unwinding a large part of the system established over decades would entail real difficulties. Pioneer’s Mr. Schickler said long-lasting tariffs would spur U.S. farmers to plant fewer soybean acres and agricultural companies to divert resources from them.

Brazil, which overtook the U.S. as the world’s biggest soybean exporter several years ago, stands to gain ground. The U.S. share of world soybean exports is expected to drop to 31% this season, the lowest on record, while Brazil’s portion is forecast to swell to 52%, which would be its largest ever.

At an agricultural forum in Beijing last fall, according to Mr. Schickler, China’s deputy agriculture minister said China would not easily forget the current standoff, and China is building alternatives for soybean imports so it will never again be so dependent on a single source.

“It was just that black and white,” Mr. Schickler said. “China doesn’t care about this year or next year — they think in terms of centuries.”
He said Brazil’s ambassador to China told the group his country was working to become China’s most reliable supplier.

According to Mr. Sutter, the CEO of the Soybean Export Council, Chinese companies are working to develop soybean production in Russia, where soybeans haven’t yet become a major crop.

American farmers have few easy options if Chinese demand for U.S. soybeans remains depressed. Robust world grain supplies suggest there is little need for additional U.S. corn or wheat production. Switching to a new crop would require huge investments in equipment and infrastructure, to say nothing of finding viable markets.

“Farmers don’t have the ability to pivot or turn on a dime and say, ‘I’ll just grow broccoli this year,’ ” said Mike Steenhoek, executive director of the Soy Transport Coalition, a trade group.

For that reason, the U.S. soybean industry is also working intensely to woo buyers in other international markets. The largest single-country export customer after China is Mexico. Industry leaders hosted 80 visitors from more than 10 countries in June, taking them on a tour from the upper Midwest to the Pacific Northwest to survey U.S. infrastructure for shipping soybeans. Additional delegations will make the trip this month.

Last year, as part of a project aimed at making up for lost sales to China, the Soybean Export Council joined a regional trade exchange in Spain, where they worked to connect U.S. shippers with buyers from the European Union, Middle East and North Africa. Industry leaders met with members of Nigeria’s poultry sector in February and held events in Asia to market American crops to buyers in countries ranging from Pakistan to Myanmar.

Restoring trade with China remains a critical goal for the export council. “We need to be looking for a way to get out of the mess we’re in” with China, said Mr. Adams, the former American Soybean Association president. In the trade fight, in his view, “We’re going to have to blink.”
Source: Dow Jones