Mark Kies (right) and his son Patrick stand in front of a combine at their farm in Hillsdale County. Nicole Ault | Col­legian

Scott Welden checks grain prices on his phone the way some people check Instagram.

“As a U.S. farmer, I watch the com­modity trading like stock­brokers watch the market on Wall Street,” said Welden, who farms pri­marily soy­beans, wheat, and corn in Jonesville, Michigan. “I keep looking at that app, and I’m like, I gotta stop looking at it.”

These days, the prices have caused more concern than usual for Welden and other U.S. farmers: They’ve tanked since last spring as trade ten­sions heightened between the United States and China, cul­mi­nating in China imposing 25-percent tariffs on corn, soy­beans, dairy, and other agri­cul­tural products in July.

Tariffs hit grains espe­cially hard: Since May, the price of soy­beans dropped from about $10 per bushel to just over $8, and the price of corn has fallen by nearly 15 percent, about 60 cents per bushel. Tariffs aren’t the only factor respon­sible for the price drops, but they’re a sig­nif­icant one. Soy­beans are an espe­cially large export product in the U.S. — in 2016 – 17, it exported 50 percent of its soy­beans, of which more than 60 percent went to China — and tariffs have choked up the export market, driving down prices as demand wanes for the already-abundant com­modity.

Welden said that the value of his family farm’s harvest has dropped by nearly a quarter. “Most busi­nesses, if they lost 20 – 24 percent of their revenue, could not survive,” he said.

In Hillsdale County, corn and soy­beans are staples of the economy. The county pro­duced 9.6 million bushels of corn and 3.6 million bushels of soy­beans in 2017, and Welden esti­mated that grain farming con­sti­tutes 25 percent of the Hillsdale County economy.

Though other agri­cul­tural products have been slapped by tariffs from China and Mexico and Canada as well — including pork and dairy, another sig­nif­icant sector of Hillsdale’s agri­cul­tural economy — soy­beans suf­fered one of the most direct hits and largest price drops. Now in the heart of harvest season, grain farmers face prices below the cost of pro­duction — and must decide whether to sell or store their crops while the future of tariffs and prices remains uncertain.

Watching soy­beans from his 3,500-acre farm in northwest Hillsdale County shoot through a bright-red auger machine into a grain silo this month, Mark Kies, who’s been farming for more than 40 years, said times are “as dif­ficult as I’ve ever seen it.”

“We’re kind of hanging in limbo right now,” Kies said.

Tariffs impact decision making

Right now, as farmers bring in the harvest and make deci­sions about what they’ll plant next year, the tariffs have a “very direct impact on what we’re doing,” said Terry Finegan, board pres­ident of the Hillsdale County Farm Bureau.

The tariff blow isn’t cat­a­strophic this year for farmers who forward-con­tracted their sales, which many do, said Jay Williams, who farms about 1,350 acres of corn, wheat, soy­beans, and alfalfa in Hillsdale and Lenawee counties. Forward-con­tracting allows farmers to lock in a price for their products before they harvest; farmers who con­tract their soy­beans when prices were $10 can avoid the $2 price drop when selling their beans this fall.

“This year, we’ll be okay income-wise,” Finegan said, referring to farmers who locked in con­tracts and have storage space. Next year, if soybean prices haven’t gone back up to $9 or $10, they’ll be in trouble, he said.

Those who didn’t forward-con­tract — or those who did, but not for all their grains — have a tough choice: Sell for lower prices, or store their grains, if they have the space, in hopes that prices will rise before long.

“What are you going to do with all that grain that you thought you were going to export?” said Heidi Schweizer, assistant pro­fessor and extension spe­cialist at North Car­olina State University’s Department of Agri­cul­tural and Resource Eco­nomics. “If you haven’t already con­tracted you need to figure out if you’re going to market your grain and soy­beans right now, or are you going to wait for a better price. That’s a really dif­ficult decision, and it depends on whether you have storage facil­ities and whether you expect prices to rise.”

Finegan said he plans to take advantage of storage this year for the grains he didn’t con­tract out.  

“This year I’m set pretty good,” Finegan said. “Next year I’m trying to decide what to do, what I want to plant, guess which way the prices are going to go, plant more corn or more soy­beans, which way to balance my rotation.”

Farmers tend to rotate corn and soybean crops on the same land, allowing them to change their ratios year to year based on expected pricing. Welden said he’s looking at where he can cut costs, first, and then at his crop rotation. Since he can rotate corn and soy­beans on the same land year to year, he can change his ratio based on expected pricing.

I don’t think there’s one simple change. It’s going to be lots of little incre­mental changes. We have to look at all aspects of our business,” Welden said.

Kies said the tariffs are affecting pur­chasing deci­sions, adding that he hopes prices for inputs such as equipment and fer­tilizer will fall.

“We’re treading water,” Kies said. “We haven’t bought any of the inputs that we nor­mally have bought at this point because cash is tighter to come by.”

The tariffs have made it harder to forward-con­tract as well, Welden said. Usually, he’d be selling some 2020 crops at this point in the season, but “those oppor­tu­nities have been pretty minor” since the trade war began.

Farmers do have an option to ease the tariffs’ financial blow: A Market Facil­i­tation Program pro­vided by the U.S. Department of Agri­culture offers farmers pay­ments equal to their 2018 pro­duction times 50 percent of a set rate. Of all grains, soy­beans have the highest rate of $1.65 per bushel (in con­trast with corn’s $0.01/bushel rate); a farmer who har­vests 100,000 bushels of soy­beans could receive $82,500.

Kies and Williams said they plan to take advantage of the program to stay com­pet­itive, though they said it won’t cover the entire loss. Welden said he’s not sure he’ll do the same.

“It’s def­i­nitely some­thing we’re looking at,” Welden said. “My own per­sonal views, I’m not always looking at the first handout. I don’t always enjoy being dependent on our gov­ernment.”

Tariffs aren’t the only problem

The tariffs are com­pounding already-existing problems for grain farmers, Kies said. Esti­mating that tariffs con­stitute only a quarter of the problems farmers are facing right now, he said a larger crop than usual has further glutted supply this year. And higher interest rates make it harder for farmers to pay back loans.

“Not all of the current market sit­u­ation is based on the tariff sit­u­ation,” Williams said, noting the large crops in 2017 and 2018. “We would have had some depression in prices regardless of the trade issue because of the sheer volume of supply of most grains that are out there. It’s not accurate to hang all of the market decline on the trade dispute.”

Welden noted that the strong U.S. dollar has also lowered prices.

The dollar value “really matters” for these exported products, Schweizer said.

“There’s a really strong dollar right now, and another big exporter of corn and soy­beans is Brazil, and they have a weak cur­rency right now,” Schweizer said. “So if you’re in China, that exchange rate makes a big dif­ference in terms of who you choose to buy from.”

Tariffs don’t stop with farmers

Though farmers feel the imme­diate impact of the tariffs, the fall-out doesn’t stop with them.

“Who else does it affect? Vir­tually everyone,” Welden said. “If the farmers don’t have profits they can’t buy equipment. Local mechanics, local equipment dealers, all of those folks are impacted. So the revenue stream that goes through the industry affects dozens and dozens and dozens of people.”

Williams agreed, noting that the tariffs affect land rent as well.

“If this is long term, it affects ag lenders who are financing those oper­a­tions,” Williams said.

Scott Brown, manager of Nutrien Ag Solu­tions in Reading, which sells fer­tilizer to farmers, said he hasn’t seen an impact on sales yet, but “it’ll probably trickle down.”

“There is concern,” he said.

Equipment dealers are also grap­pling with more direct tariffs on steel, which has raised the price of some John Deere equipment as much as 5 percent, said Ryan Beckwith, who works in sales for DG Equipment in Williamston, Michigan. That price gets passed on to the farmers pur­chasing the equipment, Beckwith said — and they don’t have a lot of money to spend.

Beckwith said he thinks there’s been a slight decline in sales since the tariffs went into effect.

“Next year could be even worse,” he said.

Looking ahead

Kies said he thought if tariffs went away in the next couple weeks, there might be a 10 percent gain in the market. But that can’t be counted on, and in the midst of uncer­tainty, farmers have to make deci­sions for next year.

Farmers are starting to decide what to plant for next planting season, which usually starts around April, Finegan said. Because corn and beans can rotate on the same land, some might plant more corn if prices are higher.

If the sit­u­ation doesn’t change, though, farmers will turn to long-run solu­tions, Welden said — and that’s some­thing they can do.

“As the U.S. farmer on the front line, I’m getting beat up right now,” he said, com­paring himself to a lineman pro­tecting a quar­terback. “But if I look at the big picture, if I realize what I’m helping in my backyard, long term it may come around. It think that it’s important that we don’t look so short sighted.”

The market is evolving, Welden said: For example, a new soybean pro­cessing plant is opening in Ithaca, Michigan, that will allow mil­lions of bushels of soy­beans to be processed locally instead of out-of-state.

Plus, “grain is fluid. You can reroute it and move it,” Welden said. Soy­beans can take many dif­ferent forms and used in dif­ferent ways — in meal form, it can be used as food; as an oil, it can be refined to be used in cooking oil, diesel fuel, and other products. And the tariffs are just on the soybean, not products that are made with it, meaning the soybean market might shift to export more end-use products, Welden said.

“I’m all for free trade. I hope the tariffs go away,” Welden said. “But I think some good things can come from it. We just have to be willing to rec­ognize that.”

For now, Finegan said farmers are hoping for a deal between the U.S. and China.

“That’s the optimism we have, is that a deal can get done and we can look forward to more sta­bility in the markets,” he said. “How long that is, who knows?”

  • Alexan­derYp­si­lantis

    I hope we resolve the Trade Dispute with China very soon. Tariffs benefit nobody in the long run. My own company has suf­fered from the impact of Trade Tariffs with China. And soybean farmers cer­tainly have.

    At the same time, we can not allow Chinese com­panies to arbi­trarily ignore our patents and copy­rights and steal intel­lectual property. Many American com­panies depend 100% on their inno­vation to sell in foreign markets, when their ideas are stolen all that capital they invested is lost. That’s the real reason for the current Tariffs.

    Hope­fully we can get it resolved soon, this month would be great for soybean farmers. My father used to grow feed corn, I know all about the dif­fi­culty making profits on a com­modity like that.

  • BradinAZ

    I wonder who he voted for?

  • Rogue A.I.

    Tariffs don’t work. They harm the con­sumer and pick winners and losers in the economy. They can cause incal­cu­lable damage to the economy, like when the Smoot-Hawley Tariff Act extended and worsened the Great Depression. This is com­pletely obvious to anyone that’s attended Hillsdale College and taken an Eco­nomics or History class. Dr. Folsom and Dr. Wolfram made this very clear with numerous examples, among others.

    It’s too bad tariffs have become a tool of a dem­a­gogue and that the Repub­licans have aban­doned their prin­ciples and gone along with it. Maybe if they had been properly edu­cated on tariffs they would have fought it. But I doubt it.

    • Alexan­derYp­si­lantis

      I gen­erally agree with you, but instead of tariffs how would do you propose han­dling Intel­lectual Theft by the Chinese gov­ernment and Chinese com­panies? Do you propose doing nothing? And if not nothing, what? Recall, we’ve already taken the issue to the WTO and the Chinese basi­cally laughed at them.

      US com­panies rely on our inno­vation to maintain a com­pet­itive edge in extremely com­pet­itive markets, if we have a nation not con­trolling the theft of copy­rights and patents we can’t ignore it. That is the bottom line.

      • Rogue A.I.

        Well, we could go the nuclear route and kick China out of the WTO and remove Most Favored Nation status. That would be similar to estab­lishing tariffs or sanc­tions, however.

        The primary thing we should focus on, however, is taking com­puter security seri­ously for once. Business exec­u­tives are unwilling to spend appro­pri­ately for security until there is a major breach and public embar­rassment. In business and gov­ernment agencies alike, we as a country need to be much more proactive about physical and com­puter security. This includes hardware and software devel­opment and design, as well as patching vul­ner­a­bil­ities and putting out big bounties for the dis­covery of those vul­ner­a­bil­ities. Too often broken hardware and software is rushed to market. The profit at all costs motive causes busi­nesses devel­oping these things to cut corners, espe­cially on security. We also need to be paying enough people to do live mon­i­toring of systems. I’m not sure how to accom­plish this by law exactly, but it needs to be a national focus across all sectors, espe­cially critical infra­structure systems, not just tech­nology sectors.

        Taking elec­tronic coun­ter­mea­sures against China also has to be on the table.

        • Alexan­derYp­si­lantis

          America can not arbi­trarily kick any nation out of the WTO, it has to be agreed upon with our fellow nations-and our ‘good’ friends in Europe wouldn’t sign-on to that.

          My own company has extensive interests in China and we’ve been the victim of Intel­lectual Property Theft. It goes along with accepting business in China, frankly. Their gov­ernment doesn’t stand up to their own com­panies and let’s them get away with it, that’s the problem.

          I don’t like Tariffs either, but we don’t have a lot of options. We need to force China to adhere to the rules of the ‘club’ or kick them out of it-and I just noted the dif­fi­culties with the latter course of action. In this sin­gular case, tariffs may be short term bad-tasting med­icine with long term ben­efits.

          Free trade is not a goal in itself, but due to it’s long term ben­efits for con­sumers. Cer­tainly we sup­pressed free trade with Germany, Italy and Japan during WW2. Unusual problems force unusual mea­sures.

          • Rogue A.I.

            That’s a fair point.