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Offbeat North Dakota soybean processors hit hard by tariffs as China cancels orders

00:02  12 july  2018
00:02  12 july  2018 Source:   cnbc.com

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China has cancelled all orders of North Dakota 's specialty food-grade soybeans . With another round of tariffs imposed on China Tuesday evening, processors worry that China fill their orders from other producing countries.

Cancel . China 's tariffs will hit farm states hard , spare service-heavy states. Both Chinese and U.S. tariffs will be effective on Friday. Whether it's Iowa soybeans or Alaskan salmon, don't expect the tariffs China is imposing on the U.S. to fall equally.

a man in a military uniform: Technician Scott Guttormson checks the processing of soybeans on a gravity sorter at Peterson Farms Seed facility in Fargo, North Dakota. © Provided by CNBC Technician Scott Guttormson checks the processing of soybeans on a gravity sorter at Peterson Farms Seed facility in Fargo, North Dakota. As the trade war between the U.S. and China heats up, North Dakota soybean processors are watching their selling season go to ruin. 

The head of the North Dakota Trade Office says Chinese buyers have killed all of their firm orders for food-grade soybeans, valued at $1.2 to $1.5 million. The cancellations happened just prior to and immediately after tariffs went into effect in July.

North Dakota processors usually sell $30 million to $35 million in food-grade beans to China annually -- with most of those contracts finalized in the summer months. They get those beans from farmers who they contract with before seeds are planted.

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FILE PHOTO: Soybeans being sorted according to their weight and density on a gravity sorter machine at Peterson Farms Seed facility in Fargo, North Dakota , U.S., December 6, 2017. REUTERS/Dan Koeck/File Photo.

China ’s proposed tariffs on soybeans would hit hard in Iowa, Kansas, Missouri, North Dakota and other states with highly competitive House and Senate races.

“Our food grade processors are normally working between July and August to lock in contracts with foreign customers,” says Simon Wilson, Executive Director of the North Dakota Trade office. “With China now on the sidelines they are working other Asian countries to see where they can sell the product."

He adds that even if they find new buyers, sales would be less profitable, "as moving to new customers drives lower margins than established ones.”

According to the state’s trade office, food-grade soybeans represent 6 percent of total foreign sales, with China being the largest buyer. 

China does have a choice

“That leaves around 230,000 acres of premium soybeans without a buyer,” said Simon Wilson, executive director of the North Dakota Trade Office. “We are in a trade war and the farmer and processors are taking the brunt” of it.

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  China deploys army of farmers in tit-for-tat trade war with U.S. Beijing is the biggest buyer of U.S. soybeans, importing some $14 billion last year — or about two-thirds of American farm exports to China. 1/3 SLIDES © Provided by NBCU News Group, a division of NBCUniversal Media LLC Image: Soybean oilBottles are filled with soybean oil made from the U.S. imported soybeans on a production line at a plant in Qufu, China, on July 4. 2/3 SLIDES © Provided by NBCU News Group, a division of NBCUniversal Media LLC Image: A bushel of soybeansBeijing is the biggest buyer of U.S. soybeans, importing some $14 billion last year.

If China does impose tariffs , soybean farmers would be hit hard . China is the most important consumer of US soybeans , purchasing about 1bn bushels annually, or 61% of total US soybean exports, more than 30% of production.

However, the threat of Chinese tariffs on American soyabeans could hurt the US economy. The agricultural product is one of the top goods shipped to China . Many farming states that backed Trump, including Iowa, rank among the top exporters and could be hard hit .

Even though some observers say Chinese buyers have no choice but to deal with the U.S. eventually, with another round of tariffs imposed on China Tuesday evening, Wilson says that Chinese customers are sure to look to Canada and other growers to fill their needs for food-grade soybeans.

And, if processors can't replace those sales with other buyers, they will be forced to store the food-grade soybeans, an unappetizing prospect. “This is for human consumption so the quality and freshness of the bean is first and foremost,” said Wilson.

Simon tells CNBC the next 30 to 45 days are critical for farmers in the state as they start to lock down contracts for next year’s crop. Reduced demand now could force farmers to move to less lucrative crops next year, he added, further hurting their bottom lines.

Responding to these concerns, a U.S. Department of Agriculture spokesperson said in a statement, “The President is standing up to protect our national interests, including holding China accountable for unfair trade practices and theft of intellectual property. Because of the trade disruptions, there is understandable anxiety in the agriculture sector. The President has directed Secretary Perdue to use the tools at his disposal to ensure that American agriculture does not bear the brunt of retaliation from foreign nations.”

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FILE PHOTO: A sample of clean, processed soybeans at Peterson Farms Seed facility in Fargo, North Dakota , U.S., December 6, 2017. Soybeans were among 106 U.S. products that China said it would hit with 25 percent tariffs , less than 11 hours after U.S. President Donald Trump’s administration

In March and April, China imposed tariffs on US soybeans in response to President Donald Trump's tariffs on billion worth of Chinese goods. Soybeans are an important US agricultural export, and a majority of those exports go to China . Soren Schroder, CEO of oilseed processor Bunge

However, the spokesperson declined to elaborate on what those tools might be: “It would be unwise to unveil the playbook while other nations are watching, but if conditions warrant, USDA will quickly begin fulfilling that promise to support producers who become casualties of these disputes.”

One-sided trade war

Curt Petrich, president of the Northern Food Grade Soybean Association acknowledges that the global trade imbalance should be managed, but said “there is a better way of addressing our partners than starting a trade war.”

The pain of this tariff war is one-sided according to some agriculture experts and the Chinese will not feel a pricing pinch. Blake Hurst, president of the Missouri Farm Bureau explained the Chinese tariff on soybeans is acting as a pro-Chinese price wedge. “With prices of soybeans depressed because of trade war fears, the 25 percent tariff only raises the price of U.S. soybeans to 2017 levels.

The Chinese are not impacted at all,” said Hurst. “The soybean farmers across the country are the ones feeling the pain. Long-term, this is not good for the farmers.”

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Soybean prices plunged more than 5 percent as traders grappled with the possible closure of a market that bought roughly half of U.S. exports of the commodity last year. Trump is threatening to impose tariffs unless China abandons a host of policies aimed at vacuuming up American technology

Farmers fear China could act on its threat to slap a 25 percent tariff on U.S. soybean imports if current trade talks in Beijing fail to resolve differences. China canceling orders . The Chicago-based company is a major soybean processor as well as one of the largest shippers of sorghum to China .

What’s more, steel tariffs are raising the price of equipment, adding to farmers’ pain, Wilson said. “There have been comments that the farmers will be taken care of but they are anxious to see what that means. There are fears of bankers calling at the end of the year not renewing lines of credit,” he added.

Senator Heidi Heitkamp (D-N.D.), member of the Agriculture committee who helped pass the bipartisan Farm Bill two years ago tells CNBC, the timing of these tariffs and the pressure it is having on farmers couldn’t come at a worse time.

“The Farm Bill is set to expire in September and NAFTA renegotiations continue. There is so much uncertainty. North Dakota farmers are rightfully concerned. The United States’ trade war with China, as well as with some of our key allies, is already directly hurting them. We need to use trade enforcement to rein in China’s unfair trade practices, but this isn’t the way to do it. This administration cannot play chicken with our farmers.”

“Given the latest round of tariffs, the soybean processors fear this trade war will be long-term,” said Wilson. “No one is talking to each other and public comments still have to be submitted and heard. It’s going to take a while."

AP FACT CHECK: Trump offers skewed view of farm trade .
President Donald Trump is promoting a lopsided view of agricultural trade as he assails "bad (terrible) Trade Deals with other countries." Agriculture is actually a strong point for U.S. commerce.A look at his tweet Friday:TRUMP: "Farmers have been on a downward trend for 15 years. The price of soybeans has fallen 50% since 5 years before the Election. A big reason is bad (terrible) Trade Deals with other countries. They put on massive Tariffs and Barriers. Canada charges 275% on Dairy. Farmers will WIN!"THE FACTS: You wouldn't know from the president's rhetoric that the U.S. exports more agricultural products than it imports, running a $17.

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