By Jake Spring and Tom Polansek
Local soybean producers shell out upwards of a half-million U.S. dollars to live in the complex. Nearby farm equipment sellers, car dealerships and construction supply stores are bustling too.
Meanwhile, nearly 5,000 miles to the north in Boone, Iowa, farmers are hunkering down. At a recent agriculture trade show here, Iowa corn and soybean grower Steve Sheppard reflected the cautious mood.
"I'm not buying any machinery, I'm not spending any money," Sheppard said.
Two countries. Same business. Two very different fates. The reason: China.
A growing trade war between the United States and China is re-ordering the global grains business. In response to Trump administration tariffs on Chinese goods, Beijing this year imposed levies on U.S. agricultural products. Among them was a 25 percent tariff on soybeans, the single most valuable U.S. farm export. U.S. growers sold $12 billion worth to China last year alone.
The fallout has been quick. China, the world's largest importer of soybeans, has scaled back purchases of U.S. grain to feed its massive hog herd.
It is turning instead to Brazil, which has ridden the wave of Chinese demand for two decades to become a global agricultural powerhouse. Brazilian soybean exports to the Asian country jumped 22 percent by value between January and September, compared to the same period a year ago.
Brazilian producers are not only selling more grain, their soy is fetching $2.83 more per bushel than beans from the United States, up from a premium of just $0.60 a year ago, thanks to stepped up Chinese purchases.
Prices for U.S. soybeans, meanwhile, recently sunk to decade lows that farmers say are below the cost of production. The slump has made the agricultural sector a drag on an otherwise healthy U.S. economy. The Trump administration said in July it would spend up to $12 billion in taxpayer funds to help U.S. farmers offset trade-related losses, although the aid package could shrink.
Many American farmers, overwhelmingly conservative voters who helped propel Donald Trump to the presidency, are standing by their man. They believe he will eventually negotiate a better trade deal with China, whose appetite for soybeans is so vast that it cannot completely wean itself off U.S. grain.
But for the time being, Trump trade policies are handing precious market share, money and momentum to Brazil, the United States' most formidable agricultural competitor. Some fear the lost ground will be hard to reclaim.
"Bad news on tariffs in the U.S. is good news for them," Robert Crain, general manager for the Americas for equipment dealer AGCO Corp, said about Brazilian farmers in an interview at the Iowa show.
(For a graphic on the diverging fortunes of farmers in the United States and Brazil, see: https://tmsnrt.rs/2CAOKWr)
BOON TO BRAZIL
Like their U.S. counterparts, Brazil's farmers produce much more grain than is needed at home. Foreign customers are responsible for the country's agricultural boom. Nearly 80 percent of Brazil's soy exports now head to China.
The city of Luís Eduardo Magalhães is a testament to the importance of this international trade. Located in the state of Bahia, with farms stretching in every direction, the formerly unincorporated rural area in less than two decades has swelled to 85,000 people. That is bigger than Sioux City, Iowa's fourth-largest city.
Major employers in Luís Eduardo, as most locals call the city, include fertilizer factories, seed producers and processors of soy and cotton. The area "relies 100 percent on agriculture," said Carminha Maria Missio, a farmer and president of the local growers union.
While Brazil's overall economy is stuck in a ditch, the nation's farm sector rolled to 13 percent growth last year. The John Deere dealership in Luís Eduardo saw its sales rise 15 percent in 2017 and is expecting double-digit growth again this year, managing partner Chico Flores Oliveira said.
The local real estate market is surging too. Another new luxury condo tower is slated to open next year. Single-family homes are sprouting throughout the city. Prices for prime farmland are up 37 percent since 2012, according to consultancy Informa Economics IEG FNP.
Brazil's total soy area is expected to expand to a record 36.28 million hectares this season due to robust Chinese demand, according to a Reuters poll of analysts.
Farmers here also are bullish on this month's presidential election in Brazil. Far-right candidate Jair Bolsonaro, who is leading in the polls, favors rolling back fines for farmers who deforest illegally or break other environmental laws. Like Trump, Bolsonaro, is wary of China. But producers here trust him not to blow it on trade.
"Rural producers support Bolsonaro emphatically," said Congresswoman Tereza Cristina, head of the powerful agriculture voting bloc in Brazil's Congress. "We have access to him...and I am certain that he is smart and sensible."
U.S. FARM BELT PINCHED
The outlook is much gloomier in Iowa, the long-established heart of U.S. agriculture.
It is the nation's top corn-producing state and the No. 2 producer of soybeans. But its access to some global markets has suffered under Trump.
The president walked away from the Trans-Pacific Partnership, a trade agreement that would have opened valuable markets such as Japan to more American ag products. His renegotiation of the NAFTA accord had Mexico, the largest importer of U.S. corn, exploring other suppliers, including Brazil. Now the Chinese are pulling back.
Boone lays smack in the state's center, surrounded by miles of row crops, hogs and poultry. Farmland values here fell 12 percent from 2012 to 2017, according to Iowa State University. Worries about the U.S.-China trade war loomed over the recent Farm Progress show, which comes to town every other year.
Equipment dealer Lee Randall jotted down prices at an auction of used tractors and implements at the show. Prices have dropped on trade tensions and low crop prices, he said, shaking his head as a green and yellow Deere & Co combine sold for $118,000 and another fetched $82,000.
"Five years ago you could have added 30 percent to every one of these pieces," said Randall, whose business, Randall Brothers, is based in Ohio.
Nearby, Brett Begemann, chief operating officer for Bayer Crop Science said farmers were likewise scrutinizing purchases of seeds and chemicals. The trade dispute is making it difficult for Bayer to predict 2019 earnings for its agriculture unit.
A two-hour drive north of Boone in Algona, Iowa, a town of about 5,500 people, farm doldrums are crimping business at the local Deere and Harley-Davidson Inc dealerships, the operators said.
"Ultimately this area lives and dies by the farmer," said Jim Wilcox, an owner of the Harley store.
Farmers' woes are showing up on bank balance sheets as well. The proportion of the region's agricultural loans reported as having repayment problems was up in the second quarter, reaching mid-year levels not seen since 2002, according to the Federal Reserve Bank of Chicago.
Rodney Jensen, who farms near Algona, regrets not making deals to sell soybeans from his autumn harvest when prices were higher. Like many, he is storing his crop, waiting for better times.
He worries China will not buy as much U.S. soy as it used to, even if the two nations patch things up.
"It's been pretty pessimistic around here," Jensen said.
(Reporting by Jake Spring in Luis Eduardo Magalhães; and Tom Polansek in Boone, Iowa; Editing by Caroline Stauffer and Marla Dickerson)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)