Three headlines sum up which industry is seeing early casualties in the just-launched trade war between the U.S. and its biggest customers:

“Trade war rhetoric shifts to reality”
“U.S. farmers hardest hit in Trump trade war”
“Soybean prices plunge to a 10-year low”

Farmers, of course, began seeing the effects of a trade war well before it officially began on July 6, as anticipation of what was coming dragged down futures markets. Grain farmers have been hit hard, and soybean farmers hardest of all.

In a typical year, just over 40 percent of all U.S. soybeans are used somewhere else in the world, with roughly two-thirds of that amount going to China, the biggest U.S. customer. In March, when a trade war began to shape up as more than blustery talk, buyers in China began to cancel hundreds of thousands of tons worth of orders, causing prices in the U.S. to plunge.

On March 25, the price of soybeans on commodity markets was $10.415 per bushel. On July 16, they traded as low as $8.11 before closing at $8.31. That’s a 20 percent implosion in less than eight weeks. Corn prices were $4.085 per bushel on May 23 and $3.40 on July 11.

Those declines are on top of a year that USDA had already forecast to be bad. In early spring, it said soybean farmers with an average national yield of 49 bushels per acre would lose about $13 per acre. But that assumed an average price of $9.25 per bushel, so at current prices the red ink will be much deeper.

Corn farmers were forecast to lose $54 per acre and wheat farmers to lose $84 per acre.

The downturn in markets has been so strong that National Farmers Union President Roger Johnson said last week that, “American corn, soybean, and wheat farmers have already lost a collective $13 billion as a result of our current trade war with the world. And while the tariffs can end tomorrow, the effects of this trade war will continue for years.”

Dairying has been hit, too. While lower grain prices do mean lower feed costs, Class III futures markets clearly appear to be spooked about prospects for dairy exports during the rest of the year.

On May 23, the Class III milk price futures average for the last six months of 2018 was $16.75 per hundredweight at the Chicago Mercantile Exchange. On July 17, it was just $15.28.

Yes, U.S. dairy exports did set new monthly records this spring in terms of percentage of total production that is sold abroad, but traders seem to believe they will also become casualties of the trade war.

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(c) Hoard's Dairyman Intel 2018
July 23, 2018
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