Soybean farmers ‘don’t have a lot of room for air’ amid trade war with China

Tractors are starting to roll over fields, and in Hickman County, Ky., at Springhill Farms, bright green tractors will start pulling planters across fields to plant soybeans and corn.

Jonathan Reynolds is a 27-year-old farmer who runs 1,600 acres of land on his family’s farm. He started farming after he graduated college and took over the operation from his grandfather when he died last January.

Reynolds is planning to follow his scheduled crop rotation even amid the potential economic uncertainty resulting from President Donald Trump’s tariffs.

“I’m sitting at 25 to 30% sold already for this coming crop, and I’m just going to kind of wait and see what happens, because … it’s too early to start locking in a loss on our crop right now,” Reynolds said.

This spring, President Donald Trump announced global tariffs then pulled them back to a 10% baseline, with some notable exceptions, including China. China responded by announcing a 34% reciprocal tariff on April 4. The tit for tat has exploded tariffs to heights above 100% for both countries.

In a typical year, one in every four rows of soybeans grown in the U.S. is sent to China for things like animal feed. Other soybean markets include the European Union, Japan, Mexico and South Korea — but none of them have the market share that China represents.

American farmers rely on foreign markets like China to purchase their corn, soybeans and wheat, but experts say uncertainty driven by Trump’s tariff announcements are putting those markets at risk. Without them, much of the surplus American farmers produce could remain in the United States, push down prices and eat into farmers’ profits.

In Tennessee, soybeans are the most common row crop. And the last time Trump sparked a trade war, the state’s growers saw their soybean exports cut by nearly half compared to the prior year. The economic toll that year, according to University of Tennessee Extension research, was nearly $40 million.

More: In Tennessee, soybean farmers bear the brunt of U.S.-China trade war (2018)

Farmers say successful sales to these markets are vital to their ability to keep their operations running amid years of rising costs.

The president of the American Soybean Association Caleb Ragland, also a Kentuckian, said he sees positives in Trump’s goals of economic strength and change, but there will be pain for agricultural industries if there isn’t a quick resolution to a potential trade war with China.

“Our farmers don’t have a lot of room for air,” Ragland said. “We’re in a tight spot financially, even before this trade war. The last couple years have pinched row crop farmers, in particular, with depressed commodity prices combined with increased cost of production and it doesn’t pencil out right now and with the potential of prices dropping significantly more with a trade war, it’s not a good outlook.”

Tariffs used as a protective tactic

Governments sometimes use tariffs to protect industries, said Grant Gardner, a professor in the University of Kentucky’s Department of Agricultural Economics. The Trump administration is using them as a negotiating tactic to protect other agricultural industries such as tobacco and vegetable producers, but it’s coming at the expense of corn and soybean farmers who need to export their products to make a profit, Gardner said.

“When we look at commodities, or corn, soybeans, wheat, in general, we produce so much in the United States, that’s our strategic advantage,” Gardner said. “We’re really good at it. We have to send it somewhere else, or all of that product gets stuck within the United States, and we’ve got a large surplus of supply that pushes prices down.”

During Trump’s last term, Kentucky farmers like Reynolds lost nearly $3 billion dollars in revenue from trade wars. Across the country, the trade war cost the U.S. agricultural economy $27 billion dollars overall between 2018 and 2019, according to the U.S. Department of Agriculture.

The federal government made payments to farmers to offset losses last time. Trump said on social media that he would protect farmers in a similar way, but he didn’t provide specifics.

Bob Hemesath is the president of Farmers for Free Trade and a corn farmer in Iowa. His organization is concerned about the tariffs but understands that this is the way Trump has chosen to go about meeting his economic goals. The group is looking at Canada, Mexico and China as they watch corn, soybeans and pork markets.

“From a row crop standpoint, from a corn soybean standpoint, we’re looking at lucky to break even this year, probably looking at losses on those crops, and so any market disruption or any loss of market will weigh on the marketplace, will weigh on the prices, so those are concerns with the tariffs as well,” Hemesath said.

Some farmers might be willing to take the short term pain if there’s longer term gains, Hemesath said, such as level playing fields on current markets and new market opportunities.

Farms operate on tight margins

These tariffs come after years of market changes from COVID-19 and two different presidential administrations. Commodity markets like soybeans, corn and canola are generally risky, and Reynolds said he’s not sure that these tariffs will make things any more risky than they have been in recent years.

“It’s kind of the old adage – I can’t remember who said it, but it’s a long time ago,” Reynolds said. “Farmers, we buy everything at retail price, we sell everything at wholesale price, which is cheaper, and we pay the freight both ways, so that is why margins are always tight.”

When commodity prices go up, he said that often the input prices — costs of seed, land, equipment and more — go up too and don’t tend to come down as quickly. In recent years, those input prices have risen significantly.

“Other than the fact that things are already tight, that’s the trouble that we’re going into right now is we haven’t had a few years to kind of prep for this, so really it’s kind of a waiting game to see what happens,” Reynolds said.

Canola seeds are starting to bloom in bright yellow on a late March day at Springhill Farms in Hickman County, Kentucky.
Some farmers will start locking in commodity prices with a variety of companies and grain elevators. Commodity prices are set by the Chicago Board of Trade and Reynolds said those prices are set daily.

“It’s a huge picture with commodity marketing, there’s so much risk involved with farming, and then you throw weather on top of that, and that’s that makes it even riskier,” Reynolds said.

Nitrogen and potash are used in many fertilizers and for many American farmers, they’re imported ingredients also under threat of tariff-induced price increases. It’s yet another operational expense that has potential to raise the cost of growing some crops and adds to the already tight margins farmers are grappling with.

Gardner with the University of Kentucky said the COVID-19 pandemic set record high prices on commodities and last year, weather affected them too. These factors led to a drop in commodity prices around harvest time that wasn’t good for farmers who waited until harvest to contract prices.

“A lot of producers are already in a tight cash flow situation and if we see the bottom drop out even more to just due to supply being backed up within the United States, that problem is just going to exacerbate,” Gardner said.

Losing China’s market share

Farmers agree to contracts throughout the year — some while they’re planting their crops and some closer to harvest. Each option has its own risks and advantages, but with shifting tariffs it’s that much more challenging for farmers to reliably earn a profit, Gardner said.

“We’ve got traders who are paying attention to what’s said online, and some of them are using algorithms that are picking up words and so anytime we have news come out to say we’re going to have a tariff put down by the Trump administration, and then it gets delayed that causes large jumps in grain prices,” Gardner said. “It makes it really hard for the producer to figure out when to sell and when to lock in a price.”

The last time Trump was in office and initiated a trade war, it caused China to turn to South America for their soybeans. Ragland said the U.S. soybean market lost about $20 billion as a result, and it hasn’t completely returned.

Now, Ragland is concerned American farmers could lose even more of the market in China.

“While we are working every day within the soybean family on behalf of growing markets and finding new uses and so forth, we still don’t need at the snap of a finger, the stroke of a pen to lose a significant market share in China,” Ragland said.

This story was produced by the Appalachia + Mid-South Newsroom, a collaboration between West Virginia Public Broadcasting, WPLN and WUOT in Tennessee, LPM, WEKU, WKMS and WKU in Kentucky and NPR.