(Bloomberg) -- Donald Trump’s first trade war hurt American soybean farmers to the tune of $11 billion. A sequel is set to be even worse.
The humble bean was the poster child of Trump’s first tariff spat with China, with American shipments to the world’s top buyer of the commodity tumbling 79% in the first two years of his administration. Back then, the Asian nation still needed some American supplies. Now it can simply live off purchases from rival Brazil.
It’s a similar picture for other commodities, with China having diversified its supplies, opening up its market for corn and wheat from Argentina, sorghum from Brazil and cotton from Australia. China’s bins are bursting — at the same time as a slowing economy is hurting domestic demand.
“First, China wasn’t prepared. This time they are prepared — they have record stocks of soybeans, in house,” said Steve Nicholson, global sector strategist for grains and oilseeds at Rabobank. “The dynamics have changed a bit.”
The risk of an escalated trade war comes as American farmers are struggling to regain their stature as the leading exporter of staples from corn to wheat, after Brazil’s successes in taking market share. Growers are already getting less for their harvest, with corn and soy prices hitting the lowest since 2020 earlier this year.
Trump is expected to repeat the playbook from his first term, with tariffs likely followed by retaliatory measures from China that would weigh on grains prices. A resolution could eventually emerge, but China will have a “lower appetite” for returning to previous import levels, Citigroup Global Markets analysts wrote in a Monday note.
Most agricultural products “are on the front line for retaliatory trade moves,” because switching sources incurs comparatively lower costs, according to Bloomberg Intelligence analysts.
The first trade war helped set in motion the current supply situation, as China’s shift away from the US spurred Brazil to plant more soybeans, with the South American nation clearing land to expand acreage. Brazil could harvest a soy crop early next year more than 30% bigger than levels seen before the US-China trade war.
But plentiful global stockpiles aren’t stopping American farmers from producing more — they’ve just harvested their biggest-ever soy crop amid growing domestic demand. Growers would probably still plant even if Trump’s trade war hits demand — after all, the former president threw $28 billion at farmers to cushion the blow during the last trade dispute.
“We don’t expect a pullback in planted area in the US,” said Chuck Magro, chief executive officer of seed maker Corteva Inc., which is aiming to expand its soy program in Brazil. “Assuming that the tariffs are in a similar vein, where China feels that it needs to buy from other markets, the US production will still find a home,” he said.
Here’s a closer look at how Trump tariffs may impact various crops:
Soy, Corn and Wheat
In January 2020, the US and China signed the so-called Phase One trade agreement, in which China pledged to buy billions of dollars worth of American farm goods and cancel tariffs.
Should those tariffs be reinstated, US farmers could lose millions of tons of grain and soy exports annually, according to a joint study commissioned by the National Corn Growers Association and American Soybean Association that was released before the election.
To reduce its dependence on the US, China in 2022 approved imports of Brazilian corn. The US had recently been shipping record amounts of US corn to China, before the pivot to Brazil.
China is also turning to Argentina for corn and wheat. It authorized purchases from the South American country earlier this year, paving the way for the first corn shipments in 15 years and the first significant wheat deals since the 1990s.
Sorghum
US producers of sorghum are highly reliant on China, the biggest consumer of the ancient grain that’s used for animal feed and to make the liquor baijiu. It shipped an equivalent of roughly 70% of its sorghum harvest to the Asian nation in the most recent season.
But late last month, China also opened the door to imports from Brazil. While the South American agricultural powerhouse has barely exported sorghum in the past, its output has increased to about 4.6 million tons. That’s presenting another challenge to America’s market share on top of the tariffs threat.
Pork
China has been boosting its imports of American pork products in recent years, although it has been allowing in more from Brazil, while the European Union is also highly dependent on demand in the Asian country.
That makes prospects for the market less promising even without a trade war. Consumption of pork is expected to decline in China, the world’s top consumer of the meat. That’s as consumers shift diets to other proteins such as poultry, beef and seafood, according to a US Department of Agriculture report.
Cotton
Chinese imports are also expected to cool from a record last year, due to strong domestic production and higher stockpiles, the USDA said in a December report. A slower economy has also dragged on demand for textiles and clothing, leading to more moderate cotton consumption growth.
The Chinese cotton and textile supply chain is “radically different” than during the 2018 trade war, said Walter Kunisch, a senior commodities market strategist at Hilltop Securities. “Overall the Chinese economy is in a different and much weaker position. Politically, China trade policy is also in a different spot.”
The country has been sourcing more from Brazil and Australia, though the nation may have difficulty shifting away from US cotton that “remains the gold standard” in quality and traceability, Kunisch said.
Brazil, which became the world’s biggest exporter in the 2023-24 year, sent nearly 1.3 million tons of cotton to China that season, outpacing US shipments.
--With assistance from Kim Chipman, Tarso Veloso, Gerson Freitas Jr. and Jonathan Gilbert.
(Updates with details on pork exports in 18th paragraph.)
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