CHICAGO (Reuters) - A rain-damaged soybean harvest in the U.S. Mississippi Delta is heaping more pain on farmers already suffering from a damaging trade war between the United States and China that has dragged prices to lows not seen in a decade.
Late-season storms, including bands of showers from Hurricane Florence, soaked ripe soybeans from Memphis, Tennessee, to northern Louisiana over the past two weeks, enhancing mold and fungus growth and causing some beans to rot in their pods, grain traders said.
Now those soybeans do not meet the market’s crop quality guidelines, so farmers that sold soybeans through forward contracts are facing a penalty because they cannot deliver beans with the quality required, they said.
The crop quality woes come as farm income has plunged by half over the past 5 years and as the deepening U.S.-China trade war harms demand for soybeans, the most valuable U.S. agricultural export product. China bought $12.3 billion of the $21.5 billion in U.S. soybean exports in 2017.
“The export market’s not in a good position to take a lot of the off-grade quality this year because of the issues we’re having without the Chinese (market),” said J.O. Norman, vice president at Oakley Grain in North Little Rock, Arkansas, which operates six elevators in the region.
China halted purchases after slapping 25 percent tariffs on U.S. shipments on July 6. Instead, the country has been drawing nearly all of its soybean needs from Brazil.
Normally, grain elevators - which buy, sell and store crops - and shippers can compensate for damaged soy by blending it with higher-quality beans to meet export specifications that require less than 2 percent damage. But high-quality beans are in very tight supply in the Delta this year because weak export prices are discouraging Midwest elevators from shipping them south.
“The damage we’re seeing is only like 3 or 4 percent, which is manageable in a normal year. But we don’t have the export market so it’s been hard to get good beans,” said a grain buyer at a Mississippi elevator who asked not to be named because he is not authorized to speak to media.
Elevators across the Delta have cut bids for soybeans to discourage a flood of farmer deliveries until demand improves.
Quality discounts have also widened due to the extent of the crop problems and the lack of higher-quality blending supplies, grain handlers said.
Oakley Grain was bidding $7.79 per bushel for spot deliveries to its North Little Rock and Pendleton, Arkansas, elevators on Thursday, the lowest price in at least six years, and quality discounts have at least doubled.
Beans with 3.1 to 4.0 percent damage are now facing discounts of 20 cents per bushel, compared to 10 cents normally, and beans with 4.1 to 5.0 percent damage are being docked 35 cents, up from 20 cents previously.
River elevators in need of soybeans for blending or applying to existing contracts have bid aggressively for what little high-quality soybeans are available. Some are bidding premiums of 10 cents a bushel or more over spot bids in the barge market, traders said.
Damaged soybeans are also being offered at deep discounts.
A package of three barges with 4.3 to 6.0 percent damage was offered at midweek at 30 cents a bushel below Chicago Board of Trade November futures, a barge trader said, well under export-grade bean values of around 4 cents above futures.
Exporters are also growing more cautious so as not to get hamstrung with unsellable soybeans.
Archer Daniels Midland is requiring additional federal grading of soybean barges loaded along the Mississippi River from Memphis and south, and all barges loaded along the Arkansas River, an extra grain inspection step to help ensure that high-damage beans do not slip into the export pipeline, traders said.
ADM did not have an immediate comment.
Reporting by Karl Plume; Editing by Sandra Maler