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Brewing trade war compounds woes of Midwest farmers

Soybeans are unloaded at dusk during harvest in Buda, Illinois, on Sept. 29, 2017. Bloomberg photo by Daniel Acker.

Thanks to President Donald Trump, China just dealt U.S. farmers their latest blow.

The Asian country said Wednesday, April 4, it plans to impose 25 percent duties on soybeans and other U.S. farm goods including wheat, corn, cotton, sorghum, tobacco and beef. The move comes in retaliation to proposed American duties on its high-tech goods. China is the largest buyer of American soybeans, with the trade worth about $14 billion annually.

The brewing trade war comes as U.S. farm income was already forecast to drop to a 12-year low and threatens one of the few sectors of the American economy with a net trade surplus. Agricultural groups have blasted the Trump administration's hard-line stance, with the American Soybean Association saying that growers will face "devastating" effects. Exports are at risk at a time when growers are already facing stiff competition from Brazil and battling crop surpluses.

"As agriculture continues to be the pawn in these trade wars, it makes the prices we receive at the farmgate much more volatile and uncertain," said Justin Knopf, a farmer in Saline County, Kansas. He grows wheat, corn, soy, sorghum and alfalfa on about 4,000 acres with his dad and brother.

"I know the president keeps saying we'll get a great deal," Knopf said. "In the meantime, it's really discouraging to have our commodity prices and our family's revenue be impacted so much because of what's happening on trade."

China's proposed duties could be felt strongest in the U.S. heartland, where Midwest voters helped secure Trump's election victory. The escalating trade spat threatens to weaken some of that support. The top producers of soybeans include political battleground states like Ohio and Iowa.

"Soybean tariffs impact U.S. Midwest political swing states and come at a cost that China appears willing to pay," Damien Courvalin, an analyst at Goldman Sachs, said in a report.

The trade spat is the latest in a long list of farmer woes. An overhang of grain supplies has sparked a protracted struggle in the agricultural economy as crop prices stayed near historical lows. The decline in producer profits has crimped spending, hindering sales for companies like Monsanto. Years of sluggish profits have also forced more farmers to take out loans to keep afloat.

The duties also come just as U.S. farmers are making acreage decisions for this season. While some growers have already begun sowing, the bulk of the Midwest will gear up for planting once weather conditions turn more favorable. The government last week had forecast soybeans to unseat corn as the largest-seeded domestic crop for the first time since the 1980s.

Global demand for the oilseed has surged in recent years, driven by record Chinese purchases. China is the world's largest pork producer and relies on imports for feed supplies.

U.S. Ambassador Terry Branstad last month warned China against retaliatory measures aimed at imports of the oilseed and said any efforts to curb the trade would harm the Asian nation's regular citizens more than American growers. In an email on Wednesday, Paul Burke, North Asia Regional Director of the U.S. Soybean Export Council, said duties on soybeans will hurt both U.S. farmers as well as Chinese soy processing, animal producers and consumers.

On Wednesday, May soybean futures fell as much as 5.3 percent in Chicago, a record loss for the contract, before paring the decline. The duty against U.S. soybeans isn't yet priced into the markets, as the tariff remains a threat with an unclear timeline, analysts at Rabobank International said in a report.

Traders will continue to focus on the timing of the tariffs. U.S. soybean shipments typically fall at this time of year as buyers shift to Brazil, where the harvest is well under way.

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Story by Megan Durisin. Bloomberg's Alfred Cang and Phoebe Sedgman contributed.

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