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Soybean exports through the Pacific Northwest are jeopardized by tariff retaliation from the Chinese government. File photo taken May 2018. N.D. (Forum News Service/Agweek/Mikkel Pates) Photo taken October 2018 near Pillsbury, N.D. (Forum News Service/Agweek/Mikkel Pates)

Farmers ponder grain tariff counter-moves

FARGO, N.D. — It won't be a usual grain marketing year for Northern Plains farmers and grain elevator companies. Farmers and elevator operators are looking at temporary storage to wait out a tariff war.

Many of the grains produced here are feeling the effects of Chinese tariffs in retaliation for U.S. tariffs on steel and aluminum, says Frayne Olson, North Dakota State University crop marketing economist. The biggest challenge, and especially at harvest, will be soybean marketing because there are no soybean bids for local elevators to sell soybeans into their traditional Pacific Northwest market.

Those soybeans typically are sold to Asian markets, especially China, Olson says. Normally, this time of year, marketers have to line up ocean vessels and trains. That isn't happening for soybeans, but there have been more bids for corn moving into the Pacific Northwest market.

"It looks like there's going to be a substitution" of corn for soybeans, Olson says.

Toughing it out

Frayne OlsonOlson says some farmers will try to use more grain bags or ring-type systems to temporarily store soybeans, hoping for a price increase. Elevator managers are "very nervous" about storing soybeans outside, Olson says, because they are higher-valued per bushel and have higher oil content, making them more susceptible to rot. "If you lose 10 percent of your soybeans because of spoilage, that's a really, really big number and it's hard to make up," Olson says.

Ken Hellevang, an NDSU Extension grain management specialist, says he's talked with elevator operators who are moving corn out of permanent storage into bunkers, intending to put soybeans into more permanent structures. Hellevang says farmers typically can safely put soybeans into bin storage at 13 percent moisture for short-term, winter storage.

But farmers shouldn't store soybeans in exposed piles. A 1-inch rain can spoil the top 2 to 3 feet on a pile, which is "devastating" in most farm operations. Storing grain in "silo bags" on the ground is preferable to exposed piles, but the beans first should be dried to 11 percent moisture. Drying beans will reduce pounds for sale by roughly 2 percent and can cause breakage. The bags aren't aerated and moisture can collect and move in them.

Going north?

Olson says farmers sometimes wonder whether wheat, corn or soybeans can ever be shipped into Canada and somehow get around tariffs placed on U.S. crops. "The short answer is no, it can't," Olson says. "It's still going to be taxed as though it's U.S. grain." Elevator operators he's talked to say shipping grain into Canada unlikely for various reasons.

One reason is that commercial trucking is roughly $3 to $4 per loaded mile for a semi-load of corn, about 1,000 bushels. That's 3 to 4 cents per bushel per loaded mile, depending on whether there is a back-haul. "If you're going to transfer or haul it several hundred miles, that's not cheap," he says.

Olson says there are always shipments going back and forth across the North Dakota-Canada border. Each of those shipments is recorded with a phytosanitary certificate. That validates the crop for its point of origin, and that it doesn't have any noxious weeds or damaging insects.

The point-of-origin will determine whether the commodity must be consumed internally in the country it is exported to. "If it reaches the export market or gets commingled with other grains in the export market it has to be registered as a mixed grain. It can't be a 'Source U.S.' or 'Source Canada," he says.

It is possible, however, some Canadian soybeans may be exported and then back-filled by U.S. soybeans moving into Canada to be fed internally. "I'm sure some of that is happening already," Olson says. It likely won't happen much because of price differentials and transportation costs.

In recent years, Canadians — particularly Manitobans — have grown more soybeans.

$.77 U.S./$1 Canadian

The Canadian currency exchange rate in mid-August was .77, meaning about $1.30 in Canadian funds is equal to $1 U.S. dollar. Corn and soybeans are bought in U.S. dollars, so the Canadians would pay a higher amount. Canola is priced in the Canadian market.

In recent years, China has sought U.S. soybeans for the meal and will look for protein sources for animal rations. Field peas also make a nice protein source. Olson says there have been reports that the Chinese have been buying more Canadian field peas for that purpose, so some U.S. field peas may go to Canada to fill that gap. Much of that will be trucked into Canada and then possibly placed on the Canadian rail system.

Canadian Pacific Railway goes from Minneapolis into Saskatoon, Saskatchewan. "It is very possible that some of that grain may get shifted into a U.S. elevator and then transloaded from the U.S. into Canada," still with the phytosanitary paper trail, Olson says.

U.S. corn shipped out of the Pacific Northwest will go to countries other than China. Mexico is the No. 1 buyer of corn, acquiring most of it from Nebraska. The No. 2 buyer is Japan, followed by South Korea and the Philippines. "Given the low prices, I think there are more countries looking at that as alternative."

Some Mexican corn importers are diversifying corn supply to Brazil and Argentina, in case of ongoing supply disruptions due to the North American Free Trade Agreement.

Olson says the most common question he hears is "How long is it going to last?" That's hard to predict because it's all about politics. "The tariff can change tomorrow but the trade agreements can take many, many months," he says.