American Farmers Concerned Over Trump's Tariff Plans

By Karl Plume and Renee Hickman

CHICAGO/EVANSVILLE, Wisconsin (Reuters) – American farmers are worried that President-elect Donald Trump's sweeping tariff plans will curb their access to top soy buyer China. However, tariffs could also lure companies to build more U.S. crushing plants, hungry for domestic supplies.

Trump's plans to roll out blanket import tariffs could slam the door on imported vegetable oil supplies. Renewable energy analysts said this could, in turn, encourage the U.S. crush industry to revive lagging plans to build new plants and expand capacity.

Such expansion has faltered over the past year, as the U.S. market was flooded with cheaper global supplies of diesel feedstocks like used cooking oil (UCO) from China, tallow from Brazil, and canola oil from Canada.

Now, these supplies are likely targets for Trump's tariffs while global supplies of other vegetable oils are tightening and prices climbing. Analysts noted USDA data projects that global rapeseed oil supplies will shrink by 13% over the coming year, with sunflower seed oil stocks down 24%. Indonesian palm oil shipments have also dropped as that country plans to boost biodiesel production next year.

Potential new demand helped send Chicago Board of Trade soyoil futures jumping nearly 6% last week to the highest in seven months, according to traders.

Analysts cautioned that it remains too soon to know how, or if, the Trump Administration will change President Joe Biden's law providing a decade of lucrative subsidies for clean-energy projects. Building domestic demand for such crops is key for consuming excess stocks, especially without access to the Chinese export market, according to agricultural economists.

Hefty global competition could dent incomes for farmers who just harvested the second-largest U.S. soybean crop ever, at a time when crop prices hover near four-year lows.

If tariffs prompt retaliation by global U.S. soybean importers, large soy processors like Bunge (NYSE:BG) Global and Archer-Daniels-Midland Co could benefit from a larger and likely cheaper supply of beans for them to crush in the U.S., say industry analysts.

"If Trump goes the tariff direction, it is friendly for the U.S. crushing industry and capacity," said Kent Woods, owner of advisory firm CrushTraders. He added that U.S. soyoil demand would rise if Trump blocks imported oils from benefiting from renewable fuel tax credits.

Farmers in rural Evansville, Wisconsin, were still waiting for the state's first commercial-scale soybean crushing plant, which had been slated to break ground last year. For Nancy Kavazanjian and husband Charlie Hammer, the plant would mean an end to the nearly 400-mile round trip to haul their soybeans to an Illinois buyer, leading to huge savings, Kavazanjian noted. "It's manpower, it's fuel, and it's time."

Promise of Riches

Soaring vegetable oil demand from biofuels makers triggered a flood of projects to build new soy processing plants three years ago. A mix of state and federal programs aimed at boosting lower carbon intensity fuels received a lift from Biden's Inflation Reduction Act (IRA) climate legislation in 2022. Since 2021, U.S. renewable diesel production capacity soared 200%.

Six new soybean processing facilities or plant expansions in Iowa, Nebraska, and North Dakota opened in less than two years. At least four more projects in Nebraska, Ohio, Indiana, and Louisiana are slated to launch through 2026.

Yet in about a half-dozen Midwestern towns, the promise of riches has stalled. Crushers cite a flood of biofuel feedstock imports, soaring construction costs, and the end of cheap financing as interest rates surged to a 23-year high as reasons for the delays.

U.S. farmers seeking to boost domestic soyoil demand have unsuccessfully attempted to persuade Biden's Treasury Department to exclude imported biofuel feedstocks from IRA subsidies known as 45Z. It remains uncertain whether Trump will try to alter the IRA's clean energy provisions or limit imports of used cooking oil, said Susan Stroud, founding analyst at No Bull Ag Consulting.

Election Results

Some firms have put the brakes on oilseed plant expansions to await clarity on how the election will impact biofuels policy. Permitting delays have stalled plant expansions by global oilseeds processors Bunge and its joint venture partner Chevron (NYSE:CVX) in Destrehan, Louisiana, and Cairo, Illinois. Industry sources indicated that Bunge scrapped plans to expand its massive plant in Council Bluffs, Iowa, though they declined to comment further.

Work on United Cooperative's smaller-scale plant in Waupun, Wisconsin, has lagged following rising construction costs and soaring interest rates, Woods of CrushTraders noted. United Coop CEO David Cramer stated that the facility would be operational within two years, with delays solely attributed to equipment procurement.

Soy processors also expect higher construction costs next year, influenced by tariffs on imported steel and processing plant equipment, which could be unfavorable for crushers yet to break ground.

Evansville Mayor Dianne Duggan mentioned that CHS had discussed approving construction of the local facility as early as spring 2023. The plant would have the capacity to crush 70 million bushels of soybeans annually, approximately two-thirds of Wisconsin's total crop production, according to company and government data. Today, however, it remains an empty field, with CHS stating the project is still under consideration.