Country Corner

Tit-for-tat tariffs mean trouble for farmers

This summer, talk of tariffs has dominated the ag media. In July, the Trump administration carried out its threat to impose 25 percent tariffs on $34 billion worth of Chinese products, such as steel and aluminum. China responded with similar duties on the same amount of U.S. imports—including soybeans, corn, cotton, wheat and pork.

Farmers are getting hit on both sides of the battle. Rising prices for steel and aluminum curtails construction of new barns, buildings and bins, and farm equipment gets more expensive to produce and buy. On the other hand, farmers will likely receive less money for crop and livestock exports. For example, at press time soybeans had taken a steep drop of more than $2 per bushel since May. Mitch Dawson, MFA Incorporated’s director of grain operations, said August beans had gotten as low as $8.10 in mid-July compared to $10.25 on May 31.

In response to growing concerns from the agricultural industry, the White House announced $12 billion in emergency aid to farmers caught in the crossfire of the trade war. As part of the deal, the Farm Service Agency will administer direct payments to producers. Officials said the assistance was calculated to match the estimated $11 billion of economic damage that these tit-for-tat tariffs will inflict on our farmers. The U.S. has never before offered aid of this scale for a trade dispute, and it likely means that the growing tensions will not end any time soon.

No one knows how this will all play out, and that uncertainty is causing trepidation in the ag industry. We just don’t have precedent. The closest scenario might be wheat tariffs in the 1980s that then-President Jimmy Carter imposed on Russia. But with four decades of change in the global marketplace, it’s impossible to truly compare those two situations. There’s no battle plan for the trade war of today.

The trouble with trade is also disconcerting for MFA’s Grain Division, Dawson said. At a time when he and other grain marketers would normally be making forward plans to sell the upcoming crop, they are forced to take a “wait-and-see” approach. Such reactionary strategy is not ideal, Dawson admits, but there’s really not much else MFA—or its farmers—can do.

I admit, I don’t know enough about international politics and trade diplomacy to know whether tariffs are an effective tactic. What I do know is that in a tight-margin business such as agriculture, farmers will suffer from tariffs, and they couldn’t come at a worse time. This year, some producers will have the lowest net farm income in more than a decade, according to USDA projections.

Lower commodity prices affect everyone. To put it into perspective, University of Missouri Extension released an impact report in July that shows every 10-cent drop in soybean prices means 150 fewer jobs, $36.3 million less in total economic activity, $10.6 million in earnings not gained, and $1 million less collected in state and local taxes. That’s for Missouri alone. And we’re talking a $2 decrease in soybean price related to tariffs, not 10 cents.

Stack those odds against the weather challenges many Midwest producers are facing this year, and the trouble keeps mounting. Pastures are poor, hay is short and crops are suffering from drought conditions. Lower prices from an escalating trade war only add insult to injury. And it’s one more thing outside the farmer’s control.

As harvest fast approaches, the ultimate impact may become clearer. Even though some farmers may have taken advantage of forward contracts above current value, many others will have to sell at least part of their new crops at the lower price. Others will be looking for long-term storage as they bide their time to see what happens. MFA will do what it can to help its members. Dawson said he anticipates grain storage should be adequate at most facilities, especially since we will likely have smaller crops due to adverse weather.

I have to believe the situation with China will get resolved eventually, with both sides making concessions. Dawson also said he expects the global markets to readjust and rebalance trade, opening up new opportunities for U.S. exports. But neither of those scenarios will happen overnight, which means producers should plan for an extended period of volatility.

Emergency funds may help soften the blow, but they are not a long-term solution. We need a successful settlement to these ongoing trade disputes with our most important agricultural trading partners. Most farmers prefer trade, not aid.

The government’s decisions are largely out of our hands, and that’s frustrating. As Dawson put it, farmers and MFA can only wait and see.

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