ADM Archer Daniels Midland Company

By Jacob Bunge and Benjamin Parkin 

Shares in grain trading firms fell Wednesday amid growing concern the Trump administration's tougher trade policies will provoke China to punish U.S. farmers.

Shares of Bunge Ltd., the world's largest soybean processor, declined 1.3%, while Archer Daniels Midland Co. fell 0.8% after The Wall Street Journal reported Chinese officials are considering tariffs on soybeans, sorghum and hogs imported from the U.S. ADM and Bunge are two of the world's largest soybean shippers, and China is far and away the world's biggest buyer.

China may not be able to slow purchases of U.S. soybeans for long, according to analysts at Vertical Group, a banking and research firm. The country is by far the world's biggest soybean importer, and its need for soybeans to feed expanding livestock operations is likely too insatiable to be met exclusively by farmers in South America, a top U.S. rival.

Reducing China's reliance on U.S. hog farmers could be easier. The country only imported about $10 million of swine from the U.S. last year. And while China buys about 6% of all exported pork, its farmers have been building up their herds, a supply surge that has pushed hog prices in China 25% to 30% lower over the past three months, Vertical Group estimated. Restricting pork shipments from the U.S. could impact big processors such as Tyson Foods Inc., Hormel Foods Corp. and Smithfield Foods Inc., owned by China-based WH Group.

Concerns that China could curtail its buying of U.S. agricultural goods has already weighed on crop and livestock markets in recent weeks. Lean hog futures fell almost 10% over the past week. Soybean futures have also fallen.

"Bottom line, we're terrified," said Brian Grossman, a market strategist at Zaner Group in Chicago who used to farm in North Dakota. "It's not going to be good for the American farmer."

Even a temporary halt in trading with China could have major ramifications for prices and U.S. farmers, Mr. Grossman said. American farmers are expected to plant as many acres of soybeans as corn this year for the first time in 35 years. If less of that is exported, analysts say domestic stocks could grow to record levels by the end of this crop year.

U.S. farmers were already bracing for another difficult year. The U.S. Department of Agriculture expects farm incomes to hit their lowest level since 2006, extending a prolonged slump that has forced some farmers out of business. Soybean prices are 42% below their 2012 peak.

Shane Hanna, who farms 1,400 acres in Delphi, Ind., fears his profit margins could be squeezed further if export disruptions push soybean prices down more. "It will be insult to injury," he said.

Mr. Hanna said he is also concerned about his neighbors who raise hogs. Diminished pork exports to China could result in reduced demand for soybeans to turn into animal feed.

"We need the pigs to eat what we produce," he said.

--Jesse Newman contributed to this article.

Write to Jacob Bunge at jacob.bunge@wsj.com and Benjamin Parkin at Benjamin.Parkin@wsj.com

(END) Dow Jones Newswires

March 21, 2018 16:58 ET (20:58 GMT)

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