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Midwestern farmers are among those taking the brunt of President Donald Trump’s strategy to win trade concessions from China. After Trump hit China with about $34 billion in tariffs, China responded in equal measure. Among its targets – soybeans.
Prices quickly fell by about 20 percent.
Trump went to Twitter to argue that the fight is worth it.
"Farmers have been on a downward trend for 15 years," he wrote July 20. "The price of soybeans has fallen 50% since 5 years before the Election. A big reason is bad (terrible) Trade Deals with other countries. They put on massive Tariffs and Barriers. Canada charges 275% on Dairy. Farmers will WIN!"
It’s clear that what is so far a mini-trade war has hurt prices. Have trade deals done the same? Trump focused on soybeans, so we took a look.
Soybean prices have fallen since 2012, but the main driver has been weather. A drought that year cut production. Lower supply led to higher prices. Good weather followed, which boosted yields and pushed prices down.
Trump tied falling prices to "terrible" trade deals, but that’s misleading.
China is far and away the largest importer of American soybeans, buying about $12.3 billion worth last year, triple the amount in 2005. This has happened in the absence of a U.S.-China trade deal.
Trump looked back to "five years before the election." We asked the White House to clarify and didn’t hear back. 2012 was the highwater mark for soybean prices. They topped out at $17.70 a bushel in early September 2012. At the end of 2017, the price was $9.55. Corrected for inflation, prices dropped over 50 percent.
Here’s how the futures market for soybeans has performed since 2000.
Several forces drove soybean markets, but the leading one has been weather. A drought in 2012 pushed down yields, which in turn, drove up prices.
Since then, the reverse happened.
"In the past five years, we have had very good weather, " said Aaron Smith, agricultural economist at University of California-Davis. "Yields have been higher and that means prices go down."
Between cooperative weather and new growing techniques, the yield per acre went up about 25 percent since 2012, Smith said.
Smith noted that before 2012, soybean prices rose thanks to the ripple effects of the growing use of ethanol. Corn is a major raw material for ethanol, and with rising demand, farmers shifted more acres from soybeans to corn. That kept soybean production in check and with fewer bushels of soybeans than there would have been, prices headed up.
But to understand soybeans sales, Smith said you need to look to Asia, and primarily China.
"The demand from China has tripled in the past ten years or so," Smith said.
The USDA statistics paint a clear picture.
While the sales numbers bounce around a bit, China’s appetite for soybeans has been strong for the past 15 years. And that has been good for American farmers.
Andrew Muhammad, a trade economist at the University of Tennessee Institute of Agriculture, said trade deals could not have been a factor here.
"China is our number one soybean export market, and we have no trade deal with China," Muhammad said.
In the 1990s, Congress granted China Most Favored Nation status. That boosted trade between the United States and China, but Most Favored Nation sets broad rules, in contrast to micro-level details that get hammered out in formal trade treaties, such as the one with Colombia, one of the most recent agreements.
The United States does have a trade agreement with Mexico. Mexico is not as big of a buyer as China, but sales have gone up since 2000 and largely held steady since 2012. The North American Free Trade Agreement might present issues in other areas of trade, but soybeans isn’t one of them.
Trump said soybean prices have fallen since 2012 and a big factor was bad trade deals.
Trump’s link between trade deals and falling prices is misplaced. Experts who know agriculture say it comes down to supply and demand. On the supply side, weather is the single most important factor, followed closely by more productive growing techniques.
On the demands side, look to China.
American farmers have benefited from current trade rules. Their largest buyer is China, where sales to China have tripled since 2005. The United States has no trade deal with China.
It does have a trade deal with Mexico, where sales gradually increased and plateaued in recent years.
Trump is correct that soybean prices have fallen, but his point about trade deals ignores the real drivers. We rate this claim Mostly False.
Donald Trump, tweet, July 20, 2018
U.S. Department of Agriculture, Commodity Costs and Returns, May 1, 2018
U.S. Department of Agriculture, Exports Sales Query System, accessed July 20, 2018
U.S. Department of Agriculture, Global Agricultural Trade System, accessed July 23, 2018
Congressional Research Service, U.S. Farm Income Outlook for 2018, Feb. 27, 2018
Office of the United States Trade Representative, United States- Colombia Trade Promotion Agreement, accessed July 20, 2018
Email interview, Andrew Muhammad, economist, Institute of Agriculture, University of Tennessee, July 20, 2018
Interview, Aaron Smith, economist, Department of Agricultural and Resource Economics, Agricultural and Resource Economics, University of California- Davis, July 20, 2018
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