China’s soybean tariffs affect Illinois farmers
November 5, 2018
“The American farmer is always the pawn,” said Lenny Gall, of Highland, Illinois. “Every time there’s a negation or conflict with a foreign country, the American farmer gets put right in the middle.”
The Gall family farm sits on 180 acres of land in Highland, IL, mainly producing soybeans and corn. Gall started farming as a kid with his father and brother.
“My grandfather had the farm before us,” Gall said. “He bought the farm in 1914. We have the notoriety of having what is called a centennial farm; it means we’ve had the farm in the family for over 100 years.”
Gall and his brother inherited the land from their parents about 25 years ago. A er his brother died, Lenny became the farm’s sole owner.
He no longer farms the land himself at 67 years old. A tenant farmer seeds, fertilizes, and harvests, while Lenny handles the farm’s upkeep, mowing the land and repairing farm buildings. He describes himself as “the maintenance guy.”
Gall receives a third of the profits from the corn and soybean crop in exchange for the tenant’s use of his land. Studies show that soybeans are not only important for the Gall family farm, but also are hugely important for Illinois and the United States as a whole.
Illinois produced more soybeans than any other U.S. state and soybeans were the top U.S. agricultural export, according to the United States Department of Agriculture in 2017. e U.S. is also the world’s leading producer of soybeans, while China is the world’s biggest importer.
In response to tariffs imposed by the U.S on Chinese imports, China levied tariffs this summer on major U.S. exports, including a 25 percent tariffs on soy. Thee United States’ soybean industry is an economic casualty of the trade war with China which could potentially lead to negative long-term effects. China imported 294.3 million bushels in September, down by 12.4 percent from August, according to a Farm Futures report.
“Tariffs on soybeans will impact its price negatively in the long run because foreign consumers will reduce demand due to the increased price while producers will experience decreased price due to reduced export market,” said Dr. Jin Choi, a DePaul University professor of economics.
Brazil and Argentina are the two other major producers of soybeans. By limiting trade ties with China, the U.S. has effectively helped to strengthen China’s
trade relations with Brazil and Argentina. e United States risks losing its competitive advantage, if China can get soybean products elsewhere for cheaper.
“What is Trump trying to protect? Is he trying to protect the U.S. manufacturing industry? If so, he is not protecting them but weakening them,” Dr. Choi said. “Because in a global economy, efficiency will trump protection.”
Soybean prices have dropped to near decade lows of $8.6750 per bushel, less than the $9-per- bushel estimated to produce the crop. Supply of beans is up due to good weather during the growing season, but demand is low due to higher prices brought on by the tariffs.
The effects of the soybean tariffs are already being felt by those in the soy industry here in Illinois.
“In my opinion, price moves are exaggerated in times of uncertainty,” said Greg Papas, who trades soy commodities out of the Chicago Board of Trade. “My business is arbitrage, so in theory I should do much better in times of uncertainty; however, in practice, I reduce position sizes and risks taken to accommodate for the exaggerated moves.”
Papas has only traded about half of the volume this year than he says he would normally trade, due to price uncertainty caused by the tariffs.
“I have sat out weeks at a time this year simply because I think the risk far outweighs the rewards,” he said.
The Agriculture Department does plan to help, announcing a $12 billion short-term aid package in July. Of that, $3.6 billion will be made available to soybean farmers, according to the Department.
“This is is a short-term solution that will give President Trump and his administration the time to work on long-term trade deals,” said Agriculture Secretary Sonny Perdue.
Secretary Perdue also noted the aid package began on Sept. 4, 2018, as farmers headed into harvest season.
Doug Schroeder, Illinois Soybean Growers vice chairman and soybean farmer from Mahomet, IL, said the package has not been enough and “producers need trade, not aid.”
“As soybean producers head into harvest, we need access to markets from trade deals and a stable Farm Bill, not short-term aid packages,” Schroeder said in a statement. “More U.S. soy gets exported to China than all other American agricultural products combined. Market access and trade certainty support our families, our businesses and our communities.”
Gall has also noticed the changes in the soybean market, prompting him to try to forward-price part of his crop shares this past July in an unsuccessful effort to assuage the effects of the tariffs. He lost 20 percent of his income this year due to the tariff.
“We are at the mercy of the market,” Gall said. “I just want to see fair and equitable contracts negotiated with foreign countries. When tariffs like these are imposed, the entire food supply of the world is in jeopardy; if the product is priced fairly and equitably for all, countries can feed their people.”
Gall said he hopes to warn people of what the future might look like if the tariffs is not absolved.
“If you think we have turmoil now, take away food from people and see what happens.”