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Trade war

US soybean farmers look for Asian alternatives to China

As trade war and swine fever hit demand, sellers seek to cultivate Myanmar and other emerging markets

Soybean products in a Chinese supermarket. With the African Swine Fever rapidly spreading throughout China, the country's demand for soybeans has tremendously decreased.    © Getty Images

NEW YORK -- American soybean farmer Bill Gordon usually takes a pen or a hat as "a token of goodwill" when he visits foreign countries on a trade mission.

As vice president of the American Soybean Association, he will likely be handing out a lot of pens and hats this year in his hunt for new buyers outside of China. His most recent trip was to Colombia and Peru, and by the end of this month he plans to visit Indonesia and Thailand. 

Soybean farmers, like the broader U.S. agricultural sector, have taken a hit from the trade war, with soybean exports so far this year down some 14% since the same period in 2017. Gordon said his organization has already initiated 10 to 15 more trade missions this year than 2018.

But politics are only part of the story.

"I do not believe a [U.S.-China] trade deal as of today could solve the problem," Gordon told the Nikkei Asian Review. "The Chinese do not need the beans."

According to Brandon Kliethermes, a senior economist at IHS Markit and a soybean farmer in Missouri, U.S. soybean growers are facing a "threefold problem": huge global yields from 2018, the rapid spread of African swine fever across China and the intensifying trade war.

The U.S. exported roughly 6 million tons of soybeans to China from the start of the year through May 23 -- down 31% from the same period in 2017, according to data from the U.S. Agriculture Department.

The U.S. Grains Council, which develops export markets for American grains farmers, said in late May that Southeast Asia is a "viable alternate" to China -- especially Myanmar, with its rising middle class and cultural dietary freedom. USGC forecasts the total feed demand in Myanmar could reach 4.5 million tons by 2020, which would be a 315% increase from 2010.

"Myanmar is not yet a high-volume market like Vietnam or Indonesia," said Manuel Sanchez, regional director for Southeast Asia at USGC, in a statement. "However, it is a combination of these small, growing markets that support prices when market access in larger markets experiences volatility."

China has been the world's largest soybean buyer. Because soybeans are mainly crushed into soybean meal to feed livestock, China's massive pork production has significantly driven U.S. soybean planting and exports, according to Kliethermes.

In 2018, U.S. soybean production reached a record 4.54 billion bushels, a 3% increase from 2017, according to the USDA. At the same time, soybean farmers in South America, such as Brazil and Argentina, also saw bumper harvests, according to Kliethermes.

As the trade war drags on and China increases imports from Brazil, U.S. farmers are left with crops that have no destination. Although some farmers, including Kliethermes and Gordon, have made sales to local livestock farms and biodiesel companies, many soybean growers in northern states depend heavily on exports because they do not have active local livestock markets.

"I still have last year's bushels of soybeans in my farm," said Monte Peterson, 60, a fourth-generation farmer living in southeastern North Dakota. "I still truly hope our two countries can make a trade deal and open up opportunities for the U.S. and for China. We would like to gain that business back again."

But even if a trade deal materialized, swine fever is expected to drag on demand for some time. The disease has been reported in all of China's provinces, as well as in other Asian countries, such as Vietnam and Cambodia, and herd sizes have shrunk tremendously. The virus -- which is not dangerous to humans but is fatal to pigs -- has affected an estimated 150 million to 200 million pigs in China alone. There is no cure or vaccine and it is unclear when a treatment might be developed.

Although China has increased its pork purchases from the EU, Canada and South America, no live imports have been recorded due to the spread of the flu, according to the Agriculture and Horticulture Development Board, an agriculture supply chain analysis company.

"Reports I've heard suggest there is no great drive to restock at the moment," said Bethan Wilkins, AHDB's red meat and diary analyst. "The Chinese pig industry will need to restructure toward more industrial units with tight biosecurity."

Kliethermes said the lasting effect of swine flu will be a loss of breeding stock, which means it will take even longer to replenish herds. And even then there is no guarantee that the new hogs will not become infected.

The Trump administration last month said it will provide $16 billion aid package for farmers affected by the trade, topping the $12 billion worth of support extended last year. But Gordon says that relying on aid is not sustainable for the sector.

In the 12-month period ending on March 31, 509 family farms had filed for bankruptcy, which is a 2% increase from the previous year, according to U.S. court statistics.

"We as farmers do not want aid payments from the U.S. government every year just to farm, change how we plant and what we plant," said Gordon. "We appreciate all that, but really, we need our markets back."

With China buying more pork from the EU, Canada, Brazil and other countries to make up for the supply, it is possible that U.S. soybean trade could redirect to these countries instead.

But in the short term, there will likely be bumps in the road.

"As agriculture products are sold on global commodity markets, in the long run it can be balanced out and trade flows can be redirected," said Johan Gott, principal consumer analyst at A.T. Kearney, a global management consultancy. "In practice, and especially in the short term, the process to realignment is messy, so farmers and companies will feel pain through the adjustment."

Although it is unlikely that demand from emerging markets will be able to offset the lost businesses from China, Gordon and Kliethermes both say that farmers are optimistic about the future.

"Every bushel, every trade deal makes the difference," Gordon told Nikkei Asian Review. "We are still trying to go to other places and trying to build these markets, so if China does not come back, we have other places we can go."

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