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Soy boom state finds itself in eye of trade storm
[CHICAGO] North Dakota home to the fourth-smallest US population is suddenly finding itself at the center of the escalating trade war between the world's largest economies.
Historically a wheat-growing region, the state's growers have been upping their soybean output at breakneck speed in recent decades. Positioned closer to western US ports than most areas of the soy belt, farmers were in a unique position to capitalize on China's skyrocketing demand for the oilseed that's used to make animal feed and cooking oil. Now that the crop has been caught in the crossfire of the US-China trade spat, that demand is disappearing.
"It's been built up, built up, built up - and now, it's like the faucet has been turned off," said Nancy Johnson of the North Dakota Soybean Growers Association.
China imposed a 25 per cent tariff on US soybeans in July, and its purchases have since slowed to a trickle. More than 70 per cent of North Dakota's soybeans were sent to the Pacific Northwest last year. From there, they often head for the Asian country.
If the logistics align, soybeans can get from a North Dakota field to a Chinese port in about two weeks, said Frayne Olson, a crop economist at North Dakota State University Extension.
With export elevators in Portland not posting bids, or purchase offers, through February, the state's basis - the spread between Chicago futures and local cash prices - has "crashed" to a discount of almost US$2 in some areas, he said. That's about double the discount this time last year, data compiled by Bloomberg show.
Chicago soybean futures have slumped 14 per cent this year amid the trade tensions. Making matters worse, American farmers are now starting to harvest what's forecast to be their biggest-ever crop.
The pain of lower prices is especially acute in export-dependent areas like North Dakota. The trade spat weighs so heavy it may even sway the state's closely contested Senate race. US soybean exports usually pick up in October. Election Day is Nov 6
Senator Heidi Heitkamp, a Democrat from North Dakota, criticized the trade war in a Sept 17 tweet, saying it's left the state's "farmers without any soybean orders from China" and pointed growers to a North Dakota State University presentation warning them to be prepared to store beans until mid-summer 2019.
The Trump administration has acknowledged the impact of the duties - especially retaliatory tariffs on soybeans and other US agricultural products - by offering US$12 billion in assistance to farmers, a key part of his political base who helped him carry rural states in 2016.
As harvest starts near Berthold Farmers Elevator's two locations in northwest North Dakota, the company will only be accepting soybeans that were previously contracted for delivery, said General Manager Dan Mostad. The elevator also won't run storage programs for farmers, which let them deliver crops that are priced later in the season.
"Those options aren't available now because of the risk associated with price," he said. "It's really been not a fun problem to deal with for the whole soybean supply chain. It's uncharted waters."
North Dakota farmers have a diverse array of crops and some are boosting sales of canola, flaxseed and peas to clear room in storage.
Finley Farmers Grain & Elevator Co has sold two trains that each hold about 430,000 bushels of soybeans for October shipment, down from the usual five, said General Manager Todd Erickson. The company is shipping more wheat and corn to make room for soybeans, and they'll use more space than ever at their facilities to hold the oilseed, he said.
"We're doing everything to have space for those distressed beans," Erickson said, noting that the 100 per cent of the elevators supplies are usually sent to West Coast ports.
Next year, it's likely that some of North Dakota's fields will shift from soy back to the traditional waves of grain, especially as the oilseed's premium over wheat, which is cheaper to grow, has shrunk.
"That's a pretty easy decision for them to go back to growing what they used to grow," said Kevin McNew, Montana-based chief economist for Farmers Business Network, an information service with about 7,000 North American producers.