As China trade war escalates, Iowa soybean country is front line

What do asphalt, shoe soles, and aquaculture all have in common? They are three of the many ways that soybean products can be used – and that’s a testament to how much the U.S. soybean industry has invested to expand its markets at home and abroad.

But despite the industry’s ingenuity and initiative in finding ever greater ways to sell soy, it’s virtually impossible to make up for the loss of the market it has spent 40 years developing: China.

“The reality is, there is only one country on the planet that has 1.4 billion people, that has a growing desire to consume pork [and] poultry” raised on soy-based feed, says Mark Steenhoek, executive director of the Soy Transportation Coalition, which is made up of two national and 12 state soy organizations.

He compares the soybean industry’s predicament to a sports bar that opens up across the street from a Major League Baseball stadium that draws 20,000 to 30,000 fans for each of its 80 home games.

“Now all of a sudden the Major League Baseball stadium has moved,” he says. “You just don’t have that ability to pivot.”

President Donald Trump campaigned on promises to address the trade imbalance with China, which he and others have criticized for devaluing its currency in order to make its exports cheaper – undercutting products made in the U.S. In office, President Trump has generally charged China with “grifting” America in bilateral relations.

When the president made good on that promise last year, Beijing retaliated with a 25% tariff on key U.S. agricultural products. Nearly all of those are grown in Republican strongholds, most notably soybeans – which are by far America’s top export to China.

Then this month, amid escalating trade tensions, China abruptly announced it would no longer purchase any U.S. agricultural products. Today China followed that move by unveiling fresh tariffs on $75 billion in U.S. goods.

China’s retaliatory actions have hit the hardest in rural Midwestern states, where many farmers voted for Mr. Trump. Some say that was a politically calculated move to undermine support for the president and his party. But despite feeling the squeeze, 57% of farmers in Iowa, Minnesota, and Illinois – the top U.S. soybean-producing states – supported the president’s approach on China back in the spring, according to an Iowa State University poll from March.

“He’s standing up for the people and for the country,” says Mark DeVries, a soy, corn, and beef farmer from Sheffield, Iowa, echoing the views of others at the cattle barn at the Iowa State Fair in Des Moines. “I can’t think of a time in the past few months that someone said, ‘We gotta get this bum out of office.’”

Another uncontrollable?

But fellow farmer Mike Holden, standing nearby, respectfully begs to differ. Though he has historically voted Republican 80% of the time, he doesn’t support Mr. Trump.

He points out that farmers have no control over the weather, the cost of inputs like seed or machinery, or the price of grain, so they can’t pass on the cost of something like tariffs, which have driven the price of soybeans down by roughly 20%.

“We have enough uncontrollables,” says Mr. Holden, who raises beef and grows corn and soybeans. “We don’t need another one in the government.”   

The 2018 tariffs hit at a hard time for American farmers, whose farm income had declined by roughly 50% since 2013. Flooding and unusually bad weather patterns this year have exacerbated their challenges.

Some Iowa farmers who were waiting to sell their soybeans until prices rebounded lost their entire soybean harvest when floodwaters seeped into their grain storage bins, causing them to burst.

Heavy rains made for late planting, and then a dry spell stunted growth. Ed Ulch, a veteran farmer in Solon, Iowa, shows a visitor one of his soybean fields, where the plants aren’t nearly as tall or fruitful as they usually are. 

“There should be three or four beans in a pod, and there’s only two,” he says, running his weathered fingers over the fuzzy pods. “I don’t see any fours on here.”

Mr. Ulch, who for years ran a fertilizer company on top of farming, had always wanted a businessperson to be president, so that he or she would understand “what goes on out here.”

But he would have preferred someone like Mitt Romney.

“To be honest with you, my vote [in 2016] was more against Hillary than it was for Trump,” he says – and that was before the trade wars hit.

“I’ll have a hard time voting for Trump again,” says Mr. Ulch.

And that is in Iowa, where the nation’s largest pork and egg producers create healthy demand for soy products, enabling it to weather the tariffs better than a state like North Dakota.

On Aug. 22, soybeans were about $8.50 a bushel. That’s half the price they brought in 2012. In late February 2018, just before Mr. Trump announced 25% steel tariffs targeting China, the price was $10.71.

Markets, not payments

It’s not just about the immediate dent that farmers are feeling in their pocketbooks, however. Though farmers received about two-thirds of a $12 billion farm aid package last year, and the Trump administration has announced a similar $16 billion package this year, they don’t want taxpayer money.

“We want markets; we don’t want payments,” says Mr. Holden.

For decades, soybean farmers have contributed 0.5% of their soybean revenues every year to something called “checkoff dollars” – funds managed by a congressionally mandated United Soybean Board and state soybean boards. The funds are invested in everything from improving production efficiency to marketing their product to foreign buyers.

Mr. Ulch, who spent 17 years on the Iowa Soybean Association board, has hosted more than 700 visitors to his farm – nearly all of them foreign – and has been on trade missions all over the world to develop new markets.

Country by country, buyer by buyer, he and his colleagues have painstakingly built relationships and strengthened the appeal of U.S. soy abroad.

Now, some farmers see Mr. Trump’s trade policy as upending those efforts.

“He has basically destroyed the markets we spent 34 years investing our own money to create,” says Mr. Holden. “Reliability is one of the No. 1 things we sold them. Now because of a tweet, we’re not reliable.”

Many are doubtful they will ever regain the access they once enjoyed to China’s massive market.

When Beijing put a 25% tariff on American soy, Chinese buyers didn’t want to pay the higher price for U.S. soy and turned to other suppliers – mainly Brazil and Argentina.

For Mr. Ulch and other farmers of his generation, who have seen markets lost to tariffs before, there’s a certain sense of déjà vu.

“[Vice President Mike] Pence says we’ll have this market back and even more,” says Mr. Ulch, sitting at his kitchen table, his white hair perfectly combed. “But I don’t think we’ll ever get it back.”

The China connection

Iowa has a special connection to China, which some hoped would ease trade tensions. In 1985, a delegation of low-level Chinese officials made a visit to the state. One of them was named Xi Jinping – who is now the country's president. He went to potlucks, stayed in a bedroom with “Star Wars” paraphernalia, and visited farms. When he returned in 2012, he told his old friends, “For me, you are America.”

One of those friends was longtime Iowa Gov. Terry Branstad, a Republican, whom Mr. Trump appointed ambassador in Beijing.

“People in Iowa were pretty optimistic when he became ambassador to China,” says farmer Jerry Rempe. “We thought it would help us in our trade.”

Mr. Rempe fully supports Mr. Trump’s tariffs, and says he respects the president more now than when he voted for him in 2016 – thanks in part to the fact that he kept his promise to address the trade imbalance with China.

But in some quarters at least, patience is wearing thin.

“It’s getting harder and harder for farmers to find hope in all of this,” says April Hemmes, who farms about 900 acres largely on her own and sits on the United Soybean Board as well as the Iowa Soybean Association board.

Last month, she and her colleagues traveled to China and met with Chinese buyers of American soybeans.

“Neither the Chinese or us want this,” she says. “They need our soybeans. We’d love to sell them our soybeans.”

When asked about Mr. Trump’s reelection chances, she says it’s too early to weigh in. But, she adds, “Hopefully agriculture is on the mind of all of the candidates. Because it’s not very fun out here right now.”