 Hi, this is Fray Nolson, crop economist and marketing specialist with NDSU Extension. This is the first of a three-part series discussing adjustments in the North Dakota soybean markets due to the Chinese tariffs on U.S. soybean exports. This is my contact information, both email as well as telephone. Please feel free to contact me if you have any questions or need additional information. This first session is going to focus on some background context for what's going on and what are some of the implications and issues that we may be facing as we move forward and these tariffs continue to be in place. Before we begin, I'd like to provide a brief overview of some of the current conditions. So the current trade and tariff issues with China are not directly tied to agriculture or agricultural products. The tariffs on U.S. soybeans are about political retaliation, not issues concerning direct soybean trade between the U.S. and China. Now we have had trade disputes on agricultural products in the past between the U.S. and China. Examples include livestock and meats, as well as corn and DDGs and grain sorghum. However, the current set of tariffs really are more concerned about intellectual property rights, trade between the U.S. and China on steel and aluminum products, as well as a range of other issues. So to emphasize, the trade disputes right now are not concerning issues directly related or tied to soybean and soybean trade. It's involved in a much larger economic trade dispute. So next, I want to emphasize that there's a lot of information now being generated and put out into the marketplace. There's a lot of different companies, as well as analytical firms and agencies and organizations that are trying to forecast what are the implications or impacts of these trades and tariffs disputes, not in line U.S. soybeans but in other products. The thing I want to emphasize is that the traditional economic methods or systems analysis that we use for this kind of trade dispute may not be as effective in forecasting possible changes as it has in the past. And the reason is because of the really deep political agendas that are involved in these trade disputes. Most traditional economic analysis tries to evaluate what would happen with the tariffs and what are the financial implications, assuming that all of the actors in the system are trying to either maximize profits or minimize costs. So we're looking for arbitrage opportunities to be able to move product through new systems. In today's environment, this is very, very politically charged and there's some political agendas that may get in the way of these traditional adjustments to the flow of product. And finally, I'd like to remind everybody that the longer these tariffs are in place, the more the permanent adjustments will be. So everybody within this system, all the way from farmers to grain elevators to the railroads to barge companies to export terminals as well as steamship companies and other importing countries are trying to adjust to this new system. What flow of grain are we going to be looking at? How do we try and adjust and accommodate these new situations and circumstances? Well as we start looking at these alternative plans and they become more and more efficient and we work out some of the problems and smooth out some of the challenges we face, it's going to be harder and harder to move back to that system that we saw before. And so I just want to emphasize that some of the changes we're seeing right now today may be permanent changes as we move through the rest of the cycle. So what does this mean for you as an individual farmer or producer of soybeans? The grain flows for 2018 harvest are not going to be normal and it's not just for soybeans but also for corn and wheat because there's going to be some spillover effects. Storage space both on farm and commercial are going to be at a premium and again I'll talk about this in a bit more detail in a moment. So as a result, farmers are going to have to adjust or modify both their grain storage as well as their crop marketing plans. The two biggest constraints we have obviously first is storage, there's only limited capacity for storage in the short term and we're still going to have to meet our cash loan needs. So which crops you sell at what time period may have to be adjusted from what your normal marketing plan suggests in the past or the one that you put together earlier this spring. So what's been happening at the local elevator level? Local elevators have not been able to make new soybean sales into the PNW export markets or export terminals since late June. Normally what happens is that the grain terminals in the Pacific Northwest send out daily bids to elevators not only in North Dakota but South Dakota, Nebraska, Minnesota, etc. with their offers to purchase soybeans for different periods into the future anywhere from 20 days into the future to four possibly five months into the future. Well those forward bids, those bids for advanced sales or purchases of grain stopped being offered for soybeans in June of this past summer. There's currently no bid available for soybean delivery to PNW through March of 2019 as of the date of this recording. So the reason this is important is because approximately 70 to 75% of North Dakota soybeans are sold to PNW export terminals. Of that approximately 98% of the soybeans sold through these terminals are then shipped directly into China. Local elevators are trying to allocate enough internal storage space to receive and hold the soybeans that they've already contracted for harvest delivery. So if you have a contract for delivery of soybeans at harvest that you made let's say in March or May or June of this last summer, those contracts will be honored, you will be able to deliver your soybeans, you will be paid on time. The challenge is going to be the elevators not going to have the flow of grain outbound to be able to free up that space and have the throughput that they normally have at harvest. And so the local elevators going to have to store those soybeans much longer than they typically would. So as a result the elevator has to keep some working room not only for the soybeans they've already pre-purchased but also storage space and handling space for both spring wheat and corn. Again corn harvest is going to be going on approximately same time as soybean harvest. So all of the elevators in the region have also dramatically lowered their cash bids for soybeans. They're really not providing an incentive for you as a farmer to deliver soybeans at harvest like you normally would. So not only has there been a drop in the futures market prices but the basis or that difference between the cash and the futures price has also widened and again this is an indication your local market is trying to disincentify or provide an incentive for you to store and deliver into the future. As a result of these backlogs and the challenges facing the flow of soybeans some elevators have actually pulled their bids for soybeans for harvest delivery meaning that they're not even offering a price. Now more elevators may follow as we move into the peak of harvest. So farmers we already know are making alternative plants to store their soybeans but some may not understand the severity of the problem and the potential timing. So many times at harvest elevators will offer delayed pricing contracts for soybeans and for corn or for wheat but in this particular case these delayed pricing contracts may not be offered for soybeans because of the challenges in providing throughput and being able to receive the grain and move the grain out later on. So many elevators are going to a cash only basis with a very wide basis level. So again that price differential between the futures price and your local market is going to be very negative discouraging you to deliver. So what are my suggestions? I'm recommending that farmers should be prepared to store their soybeans until mid-summer of 2019. And there's three primary reasons I'm recommending this. First we don't know when the Chinese tariffs will be reduced or removed. It could be next week, it could be next month, it could take several months for these tariffs to be negotiated and removed. So I want to allow you the most flexibility in your marketing plans and not get pushed into a corner where you have to make a decision that you're not comfortable with. So if you plan ahead to store your beans into mid-summer and things happen quicker than we expect, at least you have the flexibility to adapt to these new conditions. So again first we don't know when these tariffs will be reduced or removed. Second even after the tariffs are removed, it can take several months before soybeans will begin to flow efficiently back into those P&W elevators or export terminals. So again because of the flow of grain and the planning it's required to make the movement of grain as efficient as possible, it can take several months for your local elevator to be able to book the freight that they need, to be able to get the inventories that they already have in-house, move through the system so they're in a position to be able to offer you decent bids for the soybeans that you currently have in storage. And lastly there is a chance that the tariffs may be removed and then return later. And again we don't know how this is going to play out. We want to make sure that you have the most flexibility possible to be able to deliver and store your grain in good condition and make the most profit possible. So this slide shows a graph of the weekly export sales for soybeans out of the US. As you notice soybean export sales are very seasonal. This is different from corn and wheat. In corn and wheat markets we have considerable variation from week to week, but we tend to sell about the same quantity of corn and wheat in January as we do in July. That's not the case for soybeans and again one of the reasons that the soybean market is responding so dramatically to these tariffs. Our soybean export sales typically fall within a five month period from about October through the end of February and sometimes into early March. By early March what's happening is this Brazilian soybean crop is being harvested. They begin being very competitive in the world market for exports and our export sales tend to drop off. The real reason I want to point this out is that because of these seasonal sales the longer the tariffs remain the more implications there are for our export season throughout the winter months. As I mentioned earlier we can have an export sale into a particular country but it can take several months to really plan out that flow of grain and make sure that it gets from North Dakota to that export destination in a smooth and efficient manner. My reason for saying this again is just to emphasize to remain as flexible as possible. Normally we recommend you selling your soybeans out of the bin sometime by January, February because we'll delay into March. Export sales historically have dropped off very quickly. That may not happen this year and so again we want to leave ourselves as flexible as possible so if the export sales start picking up later on very late in the season you have the capacity or you're in the position to be able to supply those needs into the world market. So this concludes the first session of the three part series. I encourage you to try and listen to the next two talking more about the situation in China but then also some strategies that you can use on your farm to try and work through these challenges.