The 'outsiders': Tariffs hit big 'small' dry bean markets
FARGO, N.D. — Trump administration tariffs are upsetting the dry edible bean trade in Minnesota and North Dakota and are likely to harm processors for a long time to come.
"Our biggest concern is the future going forward," says John Berthold of Thompson, N.D., who is president of Green Valley Bean Company LLC, with its processing plant east of Park Rapids, Minn. His company processes only kidney beans — dark red kidney beans, light red kidney beans and white kidney beans.
Berthold works primarily from his home at Thompson. Berthold also is one of two dealer delegates from the North Dakota/Minnesota region to the the U.S. Dry Bean Council. There also are two grower delegates.
"These tariffs went into effect during the growing season. We do a pretty good job of maintaining our supply to meet our demands. I think that will ultimately work itself out for this year. The real concern going forward is that if we're at a 25 percent price disadvantage, it's a clear signal to our competitors in Argentina, China and Canada — anywhere in the world that grows dry beans — and that quickly becomes a multiple-year problem for us."
Council hires NDSU
The U.S. Dry Bean Council, with offices in Washington, D.C., has hired North Dakota State University economists to study whether the trade's fears are warranted. A study could inform policy makers, but Berthold acknowledges information will come long after the mid-term elections Nov. 6.
The U.S. is the world's third-largest producer of dry edible beans. North Dakota, Michigan, Minnesota and Idaho are the largest bean-producing states.
North Dakota and Minnesota together usually account for about 50 percent of U.S. dry bean production, Berthold says. Pinto beans, navy beans and black (turtle) beans are the biggest subclasses.
There are about 65,000 acres total of the kidney bean subclass, Berthold says. The region produces about 85 percent of the nation's dark red kidney beans.
"For every dry bean field you see, there's 18 soybean fields," Berthold says, comparing the two crop sizes in the region. "But It's an important crop to the region and to the farmers.
"We're a consistently profitable crop. But it tends to police itself because we don't have a futures market. It tends to follow true demand. If demand is there, the price will be there to entice the farmer to grow it. But not too much."
'In the middle'
Olson and colleagues will be looking at the impacts of retaliatory tariffs on the North Dakota/Minnesota, Nebraska and Michigan growing regions. They'll look at three dry bean subclasses — dark red kidney, navy bean and great northern beans.
They hope to have preliminary results in a month or two. There will be analysis on trade flows and values, implications for production and farm level profitability. They'll evaluate the degree of tariffs, as well as the impacts on short- and long-term quantity and value, using statistical and time-series computer forecasting models.
Olson prefers to say that edible beans are "small markets" (not specialty markets) with "very few buyers, very few sellers and much smaller quantities." Most of the players are smaller, more tightly-held private buyers and sellers.
Unlike big crops like corn and soybeans, there are no futures markets, which provide an institutional "consensus view" for value in the future, as well as the flow and logistics.
European Union buyers have instituted import tariffs on U.S. dry bean products. For each class of three subclasses Olson is studying, the European market is a large portion of the total demand base.
The markets are characterized as "more jumpy," with flat periods, followed by dramatic adjustments, up or down, with tariffs. "It's not as smooth an adjustment as in the bigger markets," he says. Shocks have an effect on farmers, but also on but also the dealer and the processor," says. Processors are "caught in the middle" because they have to offer farmers a "fair price" to entice production, but then must try to sell them into a discounted market.
Berthhold says farmers have the choice of switching crops while processors have plants that are specialized and specific to dry edible beans. "I can load a unit train of corn but it'll probably take six weeks.
Upsetting the cart
Processors start contracting with growers in December and January of the year before the crop. They simultaneously sell into the marketplace.
Dry bean growers started hearing rumors of the tariffs up to 25 percent in March 2018. European retaliatory tariffs went into effect in July. "Right away there were discussions back and forth of who is going to pay the tariffs," Berthold says. "Our European buyers thought we should pay it. We were able to work through that for the most part. There certainly were some contract cancellations and defaults."
His Green Valley Bean canceled some business, "spread it out over additional business, or maybe pushed some of the shipments out a little further," Berthold says. About 20 percent of his company's forward sales were canceled. "We were able to sell some of that domestically. We certainly feel it." Sales are "definitely slower than normal," he says.
For years, dry bean producers and processors have worked to develop international markets. "It's hard to get them back," Berthold says. He says he has no immediate plans to change staffing, but he may not handle as many kidney beans as they normally would.
"We may have to cut back significantly and look for other types of crops to run through. It certainly would be a challenge."
Berthold isn't prejudging but thinks the NDSU study will conclude that with the tariff pressure on prices that there is "not the need for the planted acreage that we have right now." It's "very hard to overcome a 25 percent price disadvantage in a commodity-type market," he says.
NDSU will also look at shifting trade policies that affect pinto beans, which often go to Mexico. That trade will be affected by the new U.S.-Mexico-Canada Agreement, which will replace the North American Trade Agreement.