--:-- Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson.
--:-- Scott Diericks: I'm Scott Diericks, a sixth-generation family farmer in Iowa.
--:-- Ryan Knutson: One of your primary crops is soybeans. And for most of your life, it hasn't been hard to sell them.
--:-- Scott Diericks: One really fond memory I have growing up is riding with my father early in the morning in a semi. He remembers being a kid and loading soybeans onto a semi-truck with his dad. Driving down to the Mississippi River where they'd put them onto a barge.
--:-- Ryan Knutson: We'd leave at four o'clock in the morning before the sun came up. We'd drive into town. We'd park. We'd get in line before they were even open. And we'd stand on the Mississippi River and we'd see the tugboats out there. We'd hear the horns and we'd see the barges that were getting ready to fill.
--:-- Scott Diericks: And it wouldn't be just one barge. It'd be multiple barges tied together. They'd go down the Mississippi, out to the Gulf of Mexico, and then they'd be exported all around the world. Most of them were bound for one place, China.
--:-- Ryan Knutson: China is the world's biggest soy importer, by a huge margin. Nearly a quarter of the soybeans grown in America end up there. But this year, American soybean farmers have a big problem. China isn't buying U.S. soybeans. As in none at all.
--:-- Scott Diericks: How important are soybeans to your family and your family history's livelihood?
--:-- Ryan Knutson: They're extremely important. It is going to be a challenge that the farm's not going to produce any profit for my family this year.
--:-- Scott Diericks: China is using soybeans as a powerful point of leverage in the trade war with the U.S. Now, as harvest season begins, the clock is ticking. And farmers like me hope a solution will come soon.
--:-- Ryan Knutson: I'm hoping it's short-term pain for long-term gain. But ultimately, though, I really hope that we can all come to an agreement that makes trade between different countries easy and easier. And that's going to be probably most beneficial for all parties involved. But right now, right now it's tough.
--:-- Patrick Thomas: Soybeans look like any other bean. Unlike corn, though, most people don't really eat soybeans straight up. They're used to make foods like tofu and soy milk. They're also crushed and turned into vegetable oil, which makes its way into nearly every type of processed food.
--:-- Ryan Knutson: They're even used in some diesel fuels. Soybeans are like a hidden, really like a hidden gem out there in terms of what we use it for. In the same way that corn is found in a number of different things that we wouldn't expect, like foods, like ketchup and stuff. Like soybean is kind of the same thing. It's an ingredient in a number of different products.
--:-- Patrick Thomas: But the biggest consumer of soybeans actually isn't people. It's livestock. A lot of it goes to livestock feed, feeds the animals, which feeds our diet for meat and protein.
--:-- Ryan Knutson: Think of America's growth of chicken and chicken nuggets and just the American fast food diet of everything that goes into all of the meat we consume for our protein-rich diets, that fueled the soybean growth in America.
--:-- Patrick Thomas: Over the last few decades, demand for soybeans has skyrocketed, especially in China, where a growing middle class has developed an appetite for things like chicken and pork.
--:-- Ryan Knutson: Why doesn't China grow their own soybeans?
--:-- Patrick Thomas: For a number of different reasons, China has struggled growing their own soybeans. Some of it comes down to climate, the farming economics in the country. There's kind of a number of different reasons why they're not very good at growing soybeans, and they've tried a number of different ways over the years.
--:-- Ryan Knutson: But they rely on importing beans. And the U.S. can grow a lot of beans. We have some of the best soil in the world in Iowa and northern Illinois and places like that.
--:-- Patrick Thomas: And that means that China started buying from the U.S. Throughout the 90s and early 2000s, U.S. farmers switched to growing soybeans to meet the huge demand coming from China. And the agricultural industry started building up the infrastructure to get it there.
--:-- Ryan Knutson: They built up ports in the Pacific Northwest, creating all sorts of jobs and business to farms in the Dakotas. Like North Dakota became a big soybean growing state. Minnesota, all these places started shipping via rail out to the ports, and we'd send it to China.
--:-- Patrick Thomas: And it became a booming business for 20-some years and really, really was a boom to many farmers. But that started to change during President Trump's first term in office, after Trump implemented tariffs on Chinese goods.
--:-- Ryan Knutson: This is the first of many. This is number one, but this is the first of many. Trump has said his goal with tariffs is to revive U.S. manufacturing, cut the U.S. trade deficit, and help reduce the national debt.
--:-- Patrick Thomas: China responds by not buying U.S. soybeans for a short period of time. It hurt prices. It led to almost $30 billion in losses for American farmers at that time.
--:-- Ryan Knutson: And the other big event, this is the second big thing that occurred during that, was it told the Chinese during Trump's first term that they couldn't rely on America as a reliable soybean supplier or that they needed to diversify.
--:-- Patrick Thomas: And so during that time, China decided, hey, we're going to spend a lot of money on improving the infrastructure in South America so we're not caught at the bargaining table with Trump again over soybeans.
--:-- Ryan Knutson: Since then, China has invested heavily in Brazilian ports, railroads, and silos to make it easier for them to access the soybeans there. Last year, Brazil provided 70% of China's soy imports, double the share from 15 years ago.
--:-- Patrick Thomas: At the same time, China has slowly been stockpiling soy, and they've been actively trying to change the diet of their livestock to include less soy overall.
--:-- Ryan Knutson: So when Trump returned to office for a second time? We're talking about a tariff of 10% on China. We're putting a 50% tariff on above the tariffs that we put on. There will be 104 tariffs going into effect on China tonight at midnight.
--:-- Patrick Thomas: China was prepared. They take retaliatory measures. Their retaliatory measures this far includes we not going to buy your soybeans.
--:-- Ryan Knutson: China has been using other products to pressure the U.S. as well, like withholding the rare earth minerals that are used in manufacturing cars, electronics, and defense equipment.
--:-- Patrick Thomas: But for farmers, as the soybean harvest begins, time for a trade deal with China is running out. It wasn't going to be until we brought in the crop that this was really going to come home to roost.
--:-- Ryan Knutson: And so now here in the next two months, this is when we really start to feel the effects of the trade war from six months ago that we talked about. This is when it comes in for the farmer. We're reaching that point.
--:-- Patrick Thomas: China has, so far, they haven't booked a single purchase from the U.S. for this harvest for soybeans. Wow. It's not like it's just gone down. It's actually gone to zero.
--:-- Ryan Knutson: It has gone to zero. At this current moment of taping, it is zero.
--:-- Patrick Thomas: China also knows that American farmers make up a key faction of Trump's political base. The Chinese, in order to, in this trade war, get at the president, can hurt some of his most loyal supporters.
--:-- Ryan Knutson: And that's what a lot of this comes down to. And right now, it's working for them. Farmers like Scott are feeling the pain.
--:-- Scott Diericks: It's tough to be in the middle. How Scott is planning to navigate this harvest season is after the break.
--:-- [Break music plays]
--:-- Ryan Knutson: Welcome back to The Journal. We're talking about the soybean trade war with China and its impact on American farmers.
--:-- Scott Diericks: So far, it doesn't look like I'm going to make any profit this year from my soybeans. This year, comparing it to my eight years of farming, it's going to be the lowest profit per acre year, at least I'm forecasting.
--:-- Ryan Knutson: At the same time that China has stopped buying soybeans from the U.S., the Department of Agriculture expects farmers to have one of the largest harvests in history, thanks to advances in farming technology.
--:-- Scott Diericks: And when demand is down and supply is up, that can only mean one thing. Prices are falling, and recently they've fallen drastically.
--:-- Ryan Knutson: So the futures price of soybeans is slightly over $10, but my local buyers are only bidding $9.30 a bushel.
--:-- Scott Diericks: And how much would they normally bid in prior years when the market was more healthy? A couple years ago, beans were in the teens was a common phrase. Beans are in the teens. And that was exciting. That's money to be made in farming.
--:-- Ryan Knutson: So going from $13 down to $9.30, it's pretty significant.
--:-- Scott Diericks: So what are you going to do if you don't get more orders? Are you going to have like a bunch of leftover soybeans? That's going to be the problem that I'm going to face as well as a lot of farmers are going to face.
--:-- Ryan Knutson: So I'm going to be harvesting my soybeans soon and I don't have any on-site storage such as grain bins that I can pick it when it's ready, store it and wait for the prices to go up so I can ensure profitability.
--:-- Scott Diericks: So I'm going to have to make the decision of selling at a lower price, maybe decide that farming was a hobby this year, not a business.
--:-- Ryan Knutson: If you don't end up selling everything, what happens to the soybeans? You don't have a grain mill. Would you just have to dump them in the garbage, basically?
--:-- Scott Diericks: Correct. If I don't sell it, I don't have any place to store it so it be a waste because it is a perishable item
--:-- Ryan Knutson: What is this going to mean for your family and your farm economically to have farming, as you said, kind of become just a hobby this year and not really bring in any money?
--:-- Scott Diericks: Well, it'll bring up the conversations on why are we spending our time doing something that isn't making our family money.
--:-- Ryan Knutson: Scott already doesn't make enough money farming to make a living. He's always held another job.
--:-- Scott Diericks: But he says that as a sixth-generation farmer, he doesn't ever want to give it up.
--:-- Ryan Knutson: Still, he worries what all this could mean for future generations.
--:-- Scott Diericks: I do see it continuing to be a challenge, not just for my generation, but for the next. And there's a lot of responsibility that I feel to carry on this tradition and make it successful and continue to build upon what previous generations have done.
--:-- Ryan Knutson: Has this changed at all how you feel about President Trump?
--:-- Scott Diericks: I'm definitely hopeful that he can make, I'm hopeful that he makes this a priority to help out soybean farmers as well as people in the industry impacted by it.
--:-- Ryan Knutson: I see him as being a cheerleader for the U.S., going out to other countries and helping promote why they should be doing business with us.
--:-- Scott Diericks: And I'm hopeful he can get it done and hopefully makes it a priority.
--:-- Ryan Knutson: When it comes to the soybean trade, is there anything that you'd want government officials or President Trump to know right now?
--:-- Scott Diericks: Know that the short-term pain is real. I'm optimistic that they can improve it.
--:-- Ryan Knutson: There's so many things in life that you can't control, that feel like aren't in your power. But a lot of people in this administration have the ability to have meetings, make relationships, solve problems, and ultimately, hopefully they can open up new doors for U.S. soybean exports.
--:-- Patrick Thomas: Our colleague Patrick says that industry trade groups have been pressing D.C. lawmakers to find new export markets outside of China and to expand the amount of soybean oil used in other products like diesel fuel.
--:-- Ryan Knutson: What are the chances that there's a government bailout coming for these farmers?
--:-- Patrick Thomas: You know, I would say it's pretty high. Secretary of Agriculture Brooke Rollins has said that it's something they're going to work with Congress on and trying to get them funds.
--:-- Ryan Knutson: We saw it during the first Trump administration. Last year, they gave $10 billion to farmers for low commodity prices, trying to make them whole.
--:-- Patrick Thomas: So I think we're probably headed for another one here at some point at the end of this year.
--:-- Ryan Knutson: President Trump said today that his administration plans to use some of the revenue it's generated from tariffs and give it to farmers.
--:-- Patrick Thomas: Even if there is a bailout, Patrick says this trade war could have a lasting impact on the farming industry.
--:-- Ryan Knutson: I think there needs to be a long-term bit of soul-searching from agriculture in terms of how they're going to deal with China being able to just turn off buying American soybeans.
--:-- Patrick Thomas: Basically, you're relying on this one country to make this decision. And if you lose that without good alternatives, it shows there's not a lot of slack in the system.
--:-- Ryan Knutson: When that buyer no longer comes to the table, you know, you're left holding a bag of a lot of soybeans.
--:-- Ryan Knutson: Before we go, we want to know if you have any questions about personal finance. What kind of financial advice are you looking for these days? What worries you the most about building wealth in the current economic climate?
--:-- Ryan Knutson: Drop us an email or send a voice note to thejournal at wsj.com.
--:-- Ryan Knutson: That's thejournal at wsj.com. That's all for today. Thursday, September 25th.
--:-- Ryan Knutson: The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Ryan Knutson: Additional reporting in this episode from John Iman.
--:-- Ryan Knutson: Thanks for listening. See you tomorrow.
