This year, for Thanksgiving, I drove from North Florida to Central Pennsylvania. It’s a beautiful ride, up through the Carolinas, into Virginia, then up into Pennsylvania.
As I drove, I noticed acres of standing crops along my route. Around my parents’ home, fields that once held corn are now planted in a different crop.
Soybeans.
And they’re rotting in the fields.
It isn’t just in Pennsylvania. In eastern North Dakota, the Arthur Companies has a giant hill near its six giant grain elevators. It’s over a million bushels of soybeans, covered with a tarp.
A year ago, that pile of beans was worth over $10.5 million. Today, Arthur Companies hopes the market comes back before it rots.
The World’s Largest Soybean Importer
The reason is the trade war. China’s poor planning in the trade war with the U.S. may have a huge impact on U.S. farmers for decades.
China defied all logic and expectations when it targeted soybeans.
The country is the world’s largest importer. The U.S. is the second-largest exporter of soy to the country. China bought more than $12 billion in soybeans from the U.S. in 2017.
Then it slapped a 25% tariff on U.S. soybean imports.
According to the U.S. Farms Report, agricultural economist Wally Tyner of Purdue University said the U.S. could lose 9 million acres of soybeans permanently if the trade war isn’t settled.
That’s because Brazil will take that much more of the market share. China turned to Brazil after cutting off its imports from the U.S.
Not everyone in China agrees with that plan. China’s former chief trade negotiator, Long Yongtu, spoke out against bringing soy into the trade war.
Yongtu led the trade negotiations as China joined the World Trade Organization in 2001. As he told a conference audience recently: “China is in dire need of soybean imports, so why did we pick out soybeans from the beginning?”
He believes that agricultural products should be a last resort for this kind of negotiation.
He also said something that resonated with me: As long as both sides send politicians to negotiate, they won’t ever reach a deal. That means there’s little hope that the Arthur Companies will get its beans sold.
From Great Pain Comes Great Opportunities
As you can imagine, soybeans hit their lowest price in a decade. You can see what I mean from the chart below:
However, as all good natural resource investors know, from great pain comes great opportunities.
China still needs a lot of soybeans. And the soy price hit a low we hadn’t seen since the financial crisis. Fewer soybeans will be planted in 2019 thanks to this event.
Things can’t get much worse for soybean prices … and when they can’t get any worse, they have to get better.
This is a sector we’ll be watching in Real Wealth Strategist. It could be the breakout sector for 2019.
Good investing,
Matt Badiali
Editor, Real Wealth Strategist