econlife - A Sad Soybean Saga by Elaine Schwartz

Imagine a play about soybeans.

The stars are the United States and China while Brazil and Argentina play the supporting roles. In the first act we have a ship racing to China. Loaded with U.S. soybeans, after a one-month voyage, the Peak Pegasus is close to beating China’s 25% retaliatory tariffs that start the next day at noon. The world is watching.

This was the location of the Peak Pegasus on July 6, 2018, the day before the deadline:

Sadly, they pulled into port at 5:30 on July 7, 2018.

Next, Act 2…


The Soybean Trade Saga

The leading producers of soybeans are the U.S., then Brazil, with Argentina a distant third. China is the big buyer.

Pigs, chickens, and cows are massive soybean consumers. Much more than the people who enjoy tofu and soy milk, a huge population of animals eats soybean meal. That takes us to China where increasing affluence has led to more meat consumption and therefore, more animals. To feed their livestock, China was buying 60% of all U.S. soybean exports.

After the U.S. tariffs hit their exports, China looked elsewhere. During our second act, U.S soybean prices descend to 10-year lows. The reason? A massive decrease in U.S. soybean exports to China:

We should note that during December, 2018, China resumed some soybean purchases. According to Trade Talks, the buying interest solely came from SOEs (state-owned enterprises) which then received a payback from the Chinese government for the tariff. Offsetting that increase, China’s soybean needs have somewhat diminished because of African swine fever hitting its hogs and a new hog feed formula with less soy protein (not a good idea).

Meanwhile Brazil has seen its soybean exports to China soar by 22% (January to September, 2018 compared to 1017). Summarizing a headline from CNBC,  Act 2 could be called “Gloom in Iowa, Boom in Brazil.”

Now we await Act 3.

Our Bottom Line: Tariff Distortions

We used to have a global market in which soybean farmers in Brazil, Argentina and the U,S. kept an eye on each other. Brazil harvested from February to May; Argentina, between April and June. Because Americans start planting in the spring, they could react to what the South Americans had produced. For example, after the 2018 Argentine drought, American farmers planted more. But then China’s tariffs complicated their plans.

For now, many farmers have some of their soybeans in storage. They are hoping for higher prices.

My sources and more: This Trade Talks podcast from the Peterson Institute had the overview. The perfect complement, Reuters then took me to the Peak Pegasus. In addition, this 2018 FAS report from the U.S. Congressional Research Service had all you could ever want to know about crop production and CNBC had the most recent soybean update. Reading all, as a suburbanite from New Jersey, I got a good picture of the plight facing our farmers.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Searching For an Accurate Statistic by Elaine Schwartz

When you measure the height of Mount Everest, it’s tough knowing precisely where the top and bottom are.

At the top, you could include the snow base. But the next day, the wind and weather would shift it. You could drill down to the underlying rocks. And you might or might not include any manmade objects that affect the height.

Similarly, identifying a “bottom” creates dilemmas. For Everest it is sea level but it could have been the center of the earth or the ocean floor. And, even if you agree that sea level is it, again different groups do it differently.

So, when Nepal completes its calculations for Everest, it could agree with 29,029–the most typical number. But the U.S. has said the mountain is 29,035 feet and Italy, 29,022.

Our point here is that seemingly precise numbers aren’t necessarily accurate. Depending on a slew of decisions, they could even be wrong.

Country of Origin

Similar to Everest, some NAFTA numbers are a challenge.

One example (currently being renegotiated) is the “rules of origin.” Where a good was made matters because tariffs depend on the answer. To be duty free, a certain percent of an item needs to have been produced in the U.S., Mexico, or Canada.

Sounds easy?

It’s not.

A car for example has more than 300 pages devoted to the criteria for determining if it has 62.5% content from the three NAFTA countries. Take an electric motor. It could have come from Asia, gone to Mexico and been used in a Mexican-made car seat. Even boxer shorts have more than one entire page in NAFTA’s regulatory tomes. There, the focus is the types of fabric that qualify.

Like the height of a mountain, the origin of the trillion dollars of goods that move among the three nations can be debated:

Our Bottom Line: A Statistical Oxymoron

The numbers matter.

For Mount Everest, climbers are looking for the highest altitudes. When Everest got a lower height from China, they shifted from the Tibet side to other peaks.

With NAFTA, rules of origin create incentives. Increased, the rules can encourage manufacturers to avoid NAFTA entirely. On the other hand, if they result in compliance, efficiency can suffer because the parts might not be optimal and the paperwork multiplies.

All of this leaves us with an awkward conclusion. We have said that a precise statistic is really an oxymoron. And yet we need the numbers for Everest and NAFTA’s rules of origin.

My sources and more: Up-to-date and interesting, the best Mount Everest measuring story was in the NY Times.and also from Newsweek. Meanwhile, a rules of origin podcast actually made one of my walks more pleasant. And, if you want more, the related paper is here.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.