Wednesday, September 19, 2018

China's Serenade To American Soybean Producers: Got Along Without You Before I Met You, Gonna Get Along Without You Now.

         knew this would happen.   I just knew it.  Chinese agronomists and hog producers are adjusting to life without American soybeans. Turns out they've been using more than they've needed all along, so the downside alteration to their hog industry's soy consumption won't be that difficult to navigate.  Separate items from the Hong Kong-based South China Morning Post last month and Reuters this morning tell a story that will probably set off some profound changes in America's heavily Chinese trade-dependent soybean industry, which of course has some huge implications for South Dakota farmers, who this year will raise nearly 300 million bushels of soybeans.  At around $8/bushel, that's a multi-billion dollar industry, and it's one that has already taken a sizable hit thanks to President Trump and his tariff-fixation over China.  China's retaliation to Trump's gratuitous tantrum, slapping a 25% tariff on its imports of American soybeans, has driven the market down by about $2/bushel, accounting for a $600 million reduction in the value of this year's South Dakota harvest.  That's a lot of money to a state with just over 800,000 residents, and I have no doubt South Dakota's general economy will take direct and indirect hits as result.                                                                                                                                                      So what is it that's happening to China's hog production that will permanently alter America's soybean industry?  Just this.  China has been "importing far more soybeans than it really needed and could do without American imports," according to a Beijing-based agribusiness consultant named Ma Wenfeng.  Turns out that Chinese pig producers can get along with about 65 million tons of soybeans a year, but have been importing about 95 million tons, nonetheless.  That 30 million ton "surplus" is just about how much they've been importing every year from the United States.  Relatively low cost and easy access to supplies have induced Chinese producers to use soymeal for about 20% of their feed requirements even though the science of optimizing feed ingredients to provide the best nutrition at the lowest cost has reduced the soy requirement to about 12%.  Ma notes that "we have plenty of replacements for soymeal, such as peanut meal, cotton meal and rapeseed meal" to replace the protein content of soymeal.  Chinese producers can also add the amino acid lysine to replace soymeal protein.  The changeover to the lower soymeal requirement has been slow because so many producers in China don't have the financial incentive to overhaul feeding systems and formulas, according to Reuters.
    But now that soy prices have escalated because of China's retaliatory tariffs, the incentives
American Soymeal Ration
Soon To Be Reduced
to switch over to lowered-soy content feed are there. 
The wide application of the know-how will permanently affect the 36-year long relationship between Chinese hog producers and American soybean farmers, which up to now has been worth about $13 billion a year.  Considering that soybean sales to China before it joined the World Trade Organization in 2001 were about $2 billion a year, the value of trade alliances should be self-evident to South Dakotans, who must be asking themselves why Trump is doing what he's doing.

4 comments:

  1. With the Trump administration, there's one constant theme and that's poor planning. The list is long. Travel ban, the wall, healthcare, tax cuts and trade. In 2016, Trump had lots of ideas but never a plan and this is the result.

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  2. Question for the House: Who was the last Republican president who had first hand knowledge about agriculture? I suspicion it was Dwight D. Eisenhower, but only because he grew up in what was then, a small Kansas farm community.

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  3. Well, if my fuzzy math is correct, that is a $750 haircut for every man, woman and child in this state. Remember trickle down economics from the Reagan years? Well this is that in spades. Because not each of those 800,000 citizens will get the $750 but the implement dealers, Main Street merchants, including car dealers, clothiers, booksellers, grocers and well you get the picture will have 600 million dollars less to share in as will not the banks who would get their share of the debts to be repaid by said farmers. Add to that the profits that those merchants would have gotten will not be coming back into the economy and the payments that those farmers were not able to make will not be there for the banks to lend.

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  4. USA owes China $1.2 Trillion. Going to war with your major debt holder is poor leadership.

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