The Soy Toboggan: Paraguay’s Farmers Navigate the Tariff War

The global soy trade is in turmoil, caught between a U.S.-China tariff war, shifting geopolitical alliances, and stringent environmental regulations. For Paraguay’s soy farmers, this chaos has become a high-stakes game of chance—akin to riding a “toboggan” down a slope of volatility. While the tariff war has disrupted traditional trade routes, it has also opened indirect pathways for Paraguay to capitalize on rising demand from Asia. Yet, success hinges on navigating regulatory hurdles, currency swings, and the whims of global commodity markets.

text2imgA Paraguayan soy farmer inspects a field under a clear sky, symbolizing resilience amid global trade volatility./text2img

The Tariff War’s Dual Impact: Risks and Rewards

The U.S.-China trade conflict has reshaped soy trade dynamics. U.S. soy exports to China fell by 3% in the 2024/25 season as Beijing turned to South American suppliers. Brazil, now the world’s largest soy exporter, has seized the opportunity to boost its market share, while Paraguay—though smaller—has also seen export volumes rise to 7.2 million metric tons in 2025/26, up from 6.5 million the prior year.

However, the tariff war has introduced new uncertainties. China’s retaliatory tariffs on U.S. soybeans (now as high as 20%) have made American exports less competitive, while Brazil’s weaker currency has amplified its advantage. The U.S. dollar’s 6% appreciation since September 2024 has further eroded U.S. competitiveness, pushing soybean futures down to $9.95 per bushel by January 2025—a 30% decline.

The EU’s Deforestation Rules: A Compliance Crossroads

Paraguay’s farmers now face another critical challenge: the EU’s December 2025 deadline for deforestation-free soy imports. While this policy aims to protect ecosystems, it threatens to disrupt trade flows for countries like Paraguay, which lack direct access to China due to diplomatic ties with Taiwan.

Industry leaders, such as Hugo Pastore of CAPECO, warn that compliance costs could squeeze profit margins, especially for smaller producers. The stakes are high: Paraguay’s soy industry accounts for 40% of its export revenue, and regulatory non-compliance could strand shipments in ports or trigger trade bans.

Weather, Currency, and the “Black-Swan” Risk

Paraguay’s recovery from 2024 droughts—a 14% drop in production—depends on favorable weather. The USDA forecasts a rebound to 10.9 million tons in 2025/26, driven by improved rainfall and expanded planting. Yet, early 2025 exports fell to 2.2 million tons, weakening the guaraní currency and straining farmer incomes.

Analysts caution that Brazil’s record harvest—40% larger than the U.S.—could depress global prices further unless a “black-swan” event, like a Brazilian drought, disrupts supply.

Biofuel Policies: A Mixed Bag for Soy Demand

The U.S. biofuel sector offers a glimmer of hope. Soy oil demand is tied to policies like the 45Z tax credit, which incentivizes renewable diesel production. However, regulatory ambiguity has stalled investment, leaving crushing margins thin. Meanwhile, California’s cap on soy-based seed oils in low-carbon fuel standards could boost demand for imports like Brazilian tallow—though China’s removal of UCO export rebates complicates this path.

The Path Forward: Growth Amid Uncertainty

Paraguay’s 2025 GDP growth forecast of 4.0% reflects resilience in agriculture and infrastructure, but risks remain. The World Bank projects 3.6% growth in 2026, assuming compliance with EU rules and stable export flows. Farmers like Valdecir De Souza see opportunities in supplying Argentina’s crushing industry, which then exports processed soy products to China. This indirect trade route avoids the diplomatic constraints with Beijing.

Yet, the EU’s December 2025 deadline looms large. If Paraguay’s producers can meet deforestation standards, they may secure long-term access to European markets. Failure could divert trade to Brazil or Argentina, which have larger economies and deeper regulatory buffers.

Conclusion: Riding the Toboggan Requires Balance

Paraguay’s soy farmers are at a crossroads. The tariff war has created an opening to expand market share, but regulatory, climatic, and financial risks could derail progress. The $9.95/bushel price floor offers a baseline, but sustained growth requires:
1. Deforestation Compliance: A 10–15% cost increase for certification may be offset by premium EU contracts.
2. Currency Management: A weaker guaraní could boost export competitiveness if global prices stabilize.
3. Diversification: Expanding direct trade with China through diplomatic negotiations or third-party processors could unlock higher margins.

The 2025/26 soy rebound to 10.9 million tons underscores Paraguay’s potential, but success demands agility. As the toboggan careens down the slope, farmers must steer with data—not just hope.