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.
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?”