North Dakota -- home to the fourth-smallest U.S. 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. USDA's June plantings report shows North Dakota farmers planted 7.05 million acres of soybeans this year, up from 5.9 million in 2014. Positioned closer to western U.S. 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 U.S.-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 percent tariff on U.S. soybeans in July, and its purchases have since slowed to a trickle. More than 70 percent 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 $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 percent 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.
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 percent 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.
Copyright 2018, Bloomberg