U.S. farmers and ranchers were blindsided by the Trump trade war, but they will adapt quickly to lower commodity prices and disruptions in the export market, said Agriculture Secretary Sonny Perdue on Wednesday. “Farmers are smart,” he said, swatting down the idea that the White House will write another agriculture aid package after earmarking up to $12 billion for this year.
“We don’t expect that much market disruption costs in the future,” Perdue told reporters. The administration said its aid package would offset the estimated $11 billion impact from “unjustified retaliatory tariffs” on U.S. agricultural goods. Perdue said the figure was based on factors beyond commodity prices. The USDA did not respond immediately to requests for an explanation of the estimate.
President Trump is slated to discuss workforce development at Northeast Iowa Community College, near Dubuque, on Thursday, with agricultural trade an unspoken part of the agenda in the state that’s the No. 1 producer of corn, ethanol, hogs, and eggs.
Trump and European Commission president Jean-Claude Juncker agreed to a moratorium on new tariffs during a meeting at the White House on Wednesday. “As far as agriculture is concerned, the European Union can import more soybeans from the United States, and it will be done,” said Juncker during a news conference.
“Soybeans is a big deal,” said Trump. “And the European Union is going to start, almost immediately, to buy a lot of soybeans — they’re a tremendous market — buy a lot of soybeans from our farmers in the Midwest, primarily.” The EU is the fourth-largest market for U.S. food and ag exports. It is also the second-largest soybean importer in the world, though it buys only one-sixth as much as No. 1 China, the destination of nearly two-thirds of soybeans sold on the world market. High tariffs currently discourage Chinese purchases of U.S. soybeans.
A dozen farm-state lawmakers huddled with Trump following the president’s meeting with Juncker. House Agriculture chairman Michael Conaway cheered Trump’s policy of confronting trade partners. “Calling out our trading partners for failing to live up to the commitments they have made is not protectionism — it’s common sense,” said Conaway.
The United States is likely to exceed WTO limits on trade-distorting farm subsidies with its $12 billion aid package, said think tank economist Joe Glauber, a former USDA chief economist. “It rises to the level of a WTO issue,” he said, because the USDA would write checks to farmers based on prices and production this year. “They’re following a bull in the china shop, writing checks,” said Glauber.
Analysts agree that the Trump tariffs will sap the financial vigor of the farm sector, but there are few firm figures. “As I’m sure you can imagine, trying to estimate the impacts is very difficult,” said Pat Westhoff of the Food and Agricultural Policy Research Institute, a think tank.
The USDA has lowered its estimate of soybean exports by 250 million bushels — 11 percent — for the trade year that begins on Sept. 1. The value of exports would drop by $4 billion, or 18 percent, because farm-gate prices are down. The USDA did not adjust its forecast of pork exports, but it said the average market price for slaughter hogs this year will be 10 percent lower than in 2017. In both instances, there are elements in the equation beyond the Trump tariffs. One is that U.S. supplies are expanding, which could pressure prices anyway. The soybean crop, for example, is projected to be the second largest ever, and hog farmers began expanding production months ago.
“U.S. pork, which began the year in expansion mode to capitalize on unprecedented global demand, now faces punitive tariffs on 40 percent of its exports,” said Ohio farmer Jim Heimerl, president of the National Pork Producers Council. More than a quarter of U.S. pork is exported. The two largest customers, China and Mexico, put retaliatory tariffs on pork, among other U.S. goods, because of U.S. tariffs on imported steel and aluminum. The pork council welcomed the Trump aid plan.
The trade war will have myriad ripple effects, say university economists. Some of them will offset direct impacts. For example, lower soybean prices could prompt U.S. farmers to plant more corn in hopes of bolstering their income. If U.S. commodity prices fall far enough, bargain hunters will snap up U.S. exports, generating income for American growers. Strong Chinese demand for soybeans from Brazil is expected to encourage Brazilian farmers to grow more soybeans and in the longer run eclipse U.S. production. The South American agricultural giant is already the world’s No. 1 soybean exporter.
Sustained low commodity prices would weaken farm income and soften farmland values. Land often is 80 percent of a farmer’s assets, so a downturn in land values can translate into a diminished portfolio and less collateral if a loan is needed.
The USDA is scheduled to update its estimates of farm income and ag exports at the end of August.