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Making Hay from the Trade War in Agriculture

Farmers, who have not seen their incomes grow in many years, are now increasingly anxious over the prospects of their most significant crop because of the worsening trade war. That crop? Soybeans, which are crucial for a huge variety of uses around the world.

It appears as if the Farm Belt will continue to suffer belt-tightening. But savvy investors are able to leverage good or bad news, regardless of policy trends.

According to the U.S. Department of Agriculture, American farmers have not seen an increase in their “cash receipts”, or revenue, since 2014 when total receipts rose slightly to almost $425 billion. That year ended up being the peak year in receipts for the Farm Belt. In the last three years, total receipts for farmers wilted to roughly $380 billion.

Farmers are nervous. Take this dire warning from Brent Bible, a soy and corn producer from Romney, Indiana who posted this comment on the Farmers for Free Trade website:

“For soybean producers like me, this is a direct financial hit. This is money out of my pocket. These tariffs could mean the difference between a profit and a loss for an entire year’s worth of work out in the field, and that’s only in the near term.

Over the long haul, soybean producers are deeply concerned that China will continue to substitute American soy with soy from our global competitors. The losses these tariffs represent can’t and shouldn’t be made up by government programs.

Frustration is growing quickly in the heartland, we need this solved now.”

The 25% retaliatory tariff on U.S. soybeans enacted by China last week may be the final nail in the coffin for some farmers. The tariff, which was considered only a threat up until a few weeks ago, is in response to the Trump administration’s taxes on more than 1,300 imported products from China. Those products include machinery, electronics, aerospace and robotic equipment.

China Punches Back

China imports one-third of the U.S.’s total soybean harvest and 60% of the U.S.’s exports. The U.S. administration may have taken faulty comfort in the fact that China produces very little of the soybeans that it consumes. The country imports 90% of the crop, which is critical for several uses including cooking oils and livestock feed.

However, that reliance on the U.S has inspired creativity and quick thinking in our Asian counterpart. The Chinese government has taken several steps to alleviate any pain from the higher priced U.S. export.

In the past month, China has made the following changes to lessen its reliance on U.S. soybeans:

  • Removed inspection requirements on a variety of substitute products including peanut meal, cottonseed meal and rapeseed meal.  
  • Issued a mandate to farmers in Heilongjiang, China’s top soybean-producing province, to grow more soybeans. The government increased subsidies on soybeans to a level where they now are double those of corn, a strong incentive for farmers to switch crops.
  • Increased imports from Russia and Brazil. Brazil, whose soybean crop is at record levels, could replace most of the orders previously supplied by U.S. farmers.

China canceled orders for at least one million tons of soybean exports from the U.S. earlier this spring due to fears of the proposed tariff. Brazilian soybean farmers are enjoying record harvests.

Due to the size of the Brazilian harvest, it could supplant a significant amount of the roughly 30 million tons of soybeans exported from the U.S. to China. Brazil is expected to harvest over 100 million tons of soybeans this year, enough to entirely satisfy the 90 million tons imported by China last year.

Like anyone worried about their income, U.S. farmers are tightening their belts. Their anxiety will likely result in the delay or cancellation of machinery purchases and other planned farm upgrades when demand from China appeared robust.

In the context of this dire news from the heartland, I’ve been leveraging the agriculture sector for bearish trades. There are many commodity-linked stocks and funds that investors can short. But my investment trades will take time, as the consequences of protectionism work their way through the farm industry.

However, my colleague Jim Fink knows how to make hay… quickly. As chief investment strategist of Velocity Trader, Jim has devised a system that reaps big gains in a short period of time. Here’s the kicker: his methods work regardless of sector, market ups and downs, economic cycles, or government policies. To learn the secrets of Jim’s next money-making moves, click here now.


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Stock Talk

Andy (Vegas)

Andy

This article is a big nothing burger. Who didn’t know that soybean prices were down? Quoting complaining farmers is a one-sided argument. Where was the other side complaining about how China was stealing their IP? Or the side that was complaining the only way into China was to hand over 50% of their company? Did you honestly think countries would give up any trade advantages by asking nicely? There were over 12,000 tariffs already in place before Trump took office. Where were the squawkers then?

Trade war is a bit strong. Skirmish, maybe. Comparing Trump to Smoot Hawley is absolutely ridiculous. Smoot Hawley imposed something like 20,000 tariffs.

It isn’t hard to find someone to criticize what is being done – they are a dime a dozen. However, I’ve never heard a single viable solution for changing the behavior of the nations that have skewed conditions in their favor. What’s your solution? Maintain the status quo?

China has been hurt – look at their markets and compare them to ours. Trade wars may not be good, like any war, but our markets aren’t down 20%. https://tradingeconomics.com/china/stock-market

No actionable information here folks, just a thinly veiled criticism of the current administration.

Andy (Vegas)

Andy

Do Not Blame Trade Tariffs For Low Soybean Prices by Chris Lehner – Archer Financial Services
https://www.barchart.com/story/futures/quotes/ZS*0/all-futures/838623/do-not-blame-trade-tariffs-for-low-soybean-prices

No where will you read:

“U.S. farmers are growing a possible record crop, planted more soybeans than corn, have stored more soybeans than a year ago, or where China for over a year has purchased more beans outside of the U.S.

Another reality is that for over a year, the cash basis on soybeans has been horrible and for most locations in the U.S., it remains awful. Before beans can have any decent rally, the basis needs to narrow. The basis was extremely wide long before Chinese tariffs.
U.S. farmers have planted more soybeans than corn. Prices last year for soybeans were better than corn and with many farmers getting better yields on last years soybean crop compared to corn. In addition, they planted more soybeans this spring. Many even lulled themselves into the idea that storing would mean better prices. When beans made lows in January because of the poor crop conditions in Argentina, they believed prices in the U.S. would remain high throughout this summer into this years harvest. When reports this past winter were about Argentina, they totally ignored predictions that Brazil was going to grow a record crop even though the reports showed Brazil planted more land to soybeans, and weather in Brazil was producing a strong healthy crop.

– When the USDA on the monthly grain reports showed improvements in Brazils crop month after month, they ignored it.

– When reports showed that Argentina sells most of their soybeans to the U.S. and Brazil and not to China, they ignored that too.

– When the quarterly grain stocks report over the past year and a half showed U.S. farmers were storing more corn and soybeans than the year before, they ignored it.

– When they knew Brazil had a record soybean crop this year, surpassing last years record crop, U.S. farmers this spring went ahead and planted more soybeans than corn.

– When it was obvious that U.S. exports were lower than a year ago and China has been purchasing 70 percent of their imported beans from Brazil and about 30 percent from the U.S., they ignored it.

– They ignored that farmers across the northern hemisphere have also planted more oilseeds from soybeans, canola and sunflowers.

With exports down over the past year, soybean cash markets were hurt long before talks of tariffs. ”

It always helps to get the whole story.

Edward Getchell

Edward Getchell

Andy,

Very illuminating comments on the soybean market and plantings. Much appreciated. I’m curious, how is it that you are so involved in this field of agriculture (and maybe others too)?

Ed

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