US farmers face growing pain from Trump’s trade war

Among the hardest hit from standoff with China are soybean farmers

American farmers, among Donald Trump’s most loyal supporters, face mounting financial pain from the president’s trade war with China and the growing risk that the damage will outlast the conflict.

The standoff with China over trade is compounding the strain of five years of falling commodity prices and losses from spring flooding. And as the dispute drags on, China is forging relationships with competing suppliers and farmers in other countries are reorienting operations to cater to the Chinese markets.

Among the hardest hit and most vulnerable to continuing tensions are soybean growers across the US grain belt. Soybean futures on Monday skidded to their lowest prices in more than a decade and are down more than 20% from a year ago.

That is a direct blow to Trump country. In the the 2016 election, Trump carried eight of the 10 states with the largest soybean production, all of them in the Midwest. Iowa, the country’s second-largest soybean producer after Illinois, swung from Democrat to Republican in 2016 and easily could swing back again.

Some agricultural leaders harshly criticised the latest escalation, though farm groups mostly have been wary of blaming Trump directly because of his popularity in rural America.

“Washington, D.C, has made another miscalculation, and the livelihoods of farmers and the communities they support is threatened,” Lynn Rohrscheib, president of the Illinois Soybean Growers, which represents 43,000 farmers in the state, said in a statement on Monday.

“Illinois soybean producers face greater challenges each day without a deal. We see no end in sight.”

The sense of peril was evident in the president’s announcement last Friday in tandem with new tariffs on China of an ill-defined plan to help farmers with US$15bil in assistance that would come on top of the US$12bil in aid announced last year.

Agriculture secretary Sonny Perdue said he is working on a plan and will submit it to the president within “a few days to a couple of weeks.”

Republicans from farm country warned that patience is waning, even as they avoided criticism of the president.

“I’d say the farm community is right on the edge of having been as supportive as they can be before that begins to turn,” GOP Senator Roy Blunt of Missouri, said. “But hopefully the president will come to some conclusion here soon.”

Senator Joni Ernst of Iowa said that farmers in her state “strongly believe that China should be held accountable, but they are also feeling the pinch and need to see that market back open for trade.”

Farmers aren’t likely to turn wholesale against Trump any time soon. “There could be some erosion of Trump’s support in the rural base of the electorate,” but for the most part they will “stick with Trump,” said Mack Shelley, a political science professor at Iowa State University.

Yet even a modest shift to Democrats or a loss of enthusiasm among his supporters could be consequential in the next election. Trump dominated rural America with a 28 percentage point advantage over Democrat Hillary Clinton in 2016 yet lost the popular vote. He only won the Electoral College by carrying Wisconsin, Michigan and Pennsylvania through a combined margin of less than 80,000 votes.

The trade war is already reverberating through American agriculture, as farm exports to China plunged from US$19.6bil in 2017 to US$9.2bil last year. Overall, US farm income dropped 16% last year to US$63bil, about half the level it was as recently as 2013.

The rainy spring this year makes things worse. Midwestern farmers typically choose between planting corn or soybeans but corn requires earlier planting. But the window for corn is running out as farmers wait for fields to dry.

“This could really be a double-whammy if they wind up planting more soybeans than they would have otherwise, if they can’t get a corn crop in,” said Joseph Glauber, former chief economist of the US Agriculture Department.

“Some people are going to have financial difficulties with this. If the prices continue to hold at these levels, people are going to burn working capital.”

Farmer bankruptcies in six Midwest states rose 30% in 2018, according to the Federal Reserve Bank of Minneapolis. A report by First Midwest Bank in Chicago showed pastdue agricultural loans up 287% in 2018 over the previous year.

Jonathan Coppess, a University of Illinois professor of agricultural policy and former head of the US Farm Service Agency, said that US farmers’ overseas competitors will gain more advantage as the dispute persists.

“There’s ripple effects. That then changes farmer behavior in different countries,” Coppess said. “Overall you could have more soybean acres. That then creates more soybean production worldwide. You don’t just turn it off.”

Brazil, American soybean producers’ strongest global competitor, only emerged as a producer following an export embargo President Richard Nixon imposed during the 1970s that caused Japan to search for alternative suppliers and farmers in Brazil to turn to the crop.

“History suggests these trade decisions cause significant changes in the market,” Coppess said. “They alter everything going forward.”

Brazil is now poised to overtake the US as the world’s biggest soybean grower in the 2019-20 growing season, only the second time it has done so, according to a US Agriculture Department forecast released Friday.

The South American nation is expanding farmland devoted to soybeans, which can mean cutting down forests, to meet higher demand from China amid the tariffs on US crops, Hubertus Muehlhaeuser, chief executive officer of CNH Industrial NV, a global agricultural equipment manufacturer, said in an interview last week.

Source: Bloomberg 

Posted on : 15 May 2019
Last Updated : Tuesday 24th March 2020