Consulting Agency UkrAgroConsult
While the new U.S.-Canada-Mexico trade deal brought some signs of relief to American farmers, most of the heartland economy is still suffering from the blow of Donald Trump’s trade war with China.
Take for instance April Hemmes, who grows soybeans and corn on 1,000 acres in Iowa. She locked in prices for half of her soy crop between March and June because of the “rumblings of tariffs.” Then, China’s retaliatory duties hit in July. Now, as harvesting gets underway, the cash offers she’s seeing have dropped below her cost of production.
She won’t bother trying to sell the half of the crop she didn’t lock in prices for. Instead, she’ll put them straight into storage, Hemmes said during an interview at the Women in Agribusiness Summit in Denver last week. “The reality is that I may not have a chance to sell those above my cost of production.”
Hemmes isn’t alone. Across the U.S. farming world, producers are feeling the bite of the trade war, with everything from apricots to sorghum targeted by retaliatory tariffs. The dispute has exacerbated the impact of years-long low prices amid a glut of crops. Farmer profits will drop 13 percent this year to $65.7 billion, the government predicts, leaving growers more dependent on aid.
Here’s a look at some of the ways farmers are suffering:
- Soybeans: One of the biggest repercussions of China’s 25 percent duties against American soy shipments is the divergence of price trends between the U.S. and rival exporters in South America.
Demand from China, which is looking for soybeans from everywhere but the U.S., has already driven up premiums for shipments from Brazil. Now, as those exportable supplies start to run out, it’s Argentina’s turn in the spotlight. In the meantime, American prices tumbled, and in many areas, cash prices have fallen below where futures are trading.
- Sorghum: American farmers planted more than 6 million acres of sorghum this year. While that’s dwarfed by the roughly 89 million seeded with corn, it’s still a major U.S. crop and rings in with bigger acreage than rice or oats. The market has become heavily dependent on shipments to China, where farmers use the plant to feed their hog herds, and moonshiners make it into a whiskey-like liquor called baijiu.
Cash sorghum prices have tumbled at Midwest elevators and ports in the Gulf of Mexico in recent months because of the trade tensions.
“Very little grain is trading, and what is trading is at reduced prices,” said Tim Lust, chief executive officer of the National Sorghum Producers in Lubbock, Texas. “It’s just challenging.”
- Alfalfa: The value of U.S. hay exports reached about $1.5 billion last year, almost quadrupling over the previous two decades, as China became the main destination for the alfalfa variety. The trade war is expected to push prices down 7.5 percent and could cut revenue for alfalfa producers by about $377 million, according to a report from the University of California Agricultural Issues Center in Davis.
- Cherries: Included in China’s $60 billion hit list announced last month were shipments of American fruits including apricots, peaches and cherries. The U.S. exports about $13 billion of fruit and tree nuts annually, with about 15 percent of that going to China and Hong Kong, David Magana and Roland Fumasi, senior analysts at Rabobank, said in a September report.
The impact of the fees will vary, partly because of China’s reliance on U.S. supplies for some products. Cherry and grape shipments will be hurt the most, with exports expected to fall more than 20 percent, the bank said.
Struggling farmers aren’t expecting relief anytime soon. An index of agricultural producers’ sentiment by CME Group and Purdue University in September fell to the lowest in almost two years. Also telling, the measure of future expectations dropped.
One bright spot for U.S. farmers could come from the grain market. While China has targeted American corn and wheat shipments with tariffs, the Asian country doesn’t usually buy much from the U.S., helping to cushion the impact.
Meanwhile, wheat crops in major producers including Russia, Australia and France withered this year amid extreme heat and drought. That means the U.S. could take a larger share of the global export market, and benchmark cash prices are up almost 20 percent from a year ago.
Cash-corn prices are also up from this time last year, but the grain is still trading under the cost of production for many growers as inventories remain ample.
The Trump administration has looked to soften the tariff blow for farmers, with the pledge of about $12 billion in aid. But farmers like Hemmes of Iowa have maintained a steady mantra: “We’d rather have trade than aid,” she said.
“What scares me is that we worked for 35 years to get that China market, and then it’s gone,” said Hemmes, who’s also on the board of directors for the Iowa Soybean Association. “Markets don’t come back. Just to know that we worked for all those years, and then to have it gone, is frustrating to me.”
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