Kirk Liefer is readying his soybeans for shipment down southern Illinois’s Kaskaskia River. The Kaskaskia feeds into the Mississippi, which, to a great extent, feeds China: About one-quarter of the U.S. crop goes straight to the world’s biggest food market, where it gets eaten by half the planet’s pigs and provides cooking oil for a rapidly growing middle class.
“Our soybeans go to China, a lot of the corn goes to Japan or Mexico,” says Liefer, 39. “Almost everything that’s a bulk crop goes overseas. You take that away, you ripple through the entire region.”
U.S. farmers and agribusinesses are wary of the protectionism driving the trade policy of President Donald Trump, while rivals are calculating how doors closed by the U.S. could open markets for them. David MacLennan, chief executive officer of Cargill, the world’s largest grain trader, says the U.S. “cannot wall ourselves off” from world markets. He warns that protectionism can “provide famine, cause conflict and even war.”
The view is different from Brazil, where Agriculture Minister Blairo Maggi, whose family owns one of the nation’s biggest soybean shippers, says his country “is back in the game,” competing for sales it had conceded to the U.S. Now the Trump administration may slow the adoption of Asian trade pacts, giving Brazil an opening.
The outcome could be a shift away from America, the world’s traditional breadbasket. Brazil, Australia, Russia, and Ukraine are well-positioned to profit from any American disruption. “You’re shooting yourself in the foot,” says Joe Glauber, a former chief economist for the U.S. Department of Agriculture and chief U.S. negotiator on farm issues during the Doha Round of global trade talks. “If a supplier starts to be seen as unreliable, the global supply chain adjusts, and that player will lose market share going forward.”
Unlike sectors such as manufacturing, where trade deals are blamed for job losses, U.S. agriculture has benefited from globalization. Sales of U.S. corn, soybeans, cattle, and other commodities will reach $134 billion in the 2017 fiscal year, up from $129.7 billion the year before, according to the USDA. This year, Canada and Mexico will account for $39.6 billion of U.S. farm trade, or 31 percent.
About half of all global corn exports are grown in the U.S. Almost half of all U.S. wheat, half of its soybeans and rice, and three-quarters of its cotton are shipped abroad.
The U.S. is the world’s top exporter and highly competitive. Still, America’s export share is declining as rivals catch up in technology and infrastructure. Russia, once a grain importer, surpassed the U.S. in wheat exports for the first time last year, and the two countries are neck and neck this year. Brazil is rising in soybeans, thanks to weather that allows two crops per year and land that’s yet to be fully developed.
U.S. farmers need exports to keep already low commodity prices at home from collapsing. Gluts have pushed down corn prices to less than half their 2012 peak, and farmer profits may fall for the fourth straight year, the longest streak since the 1970s, the government said on Feb. 7.
That’s why U.S. farmers have backed trade deals such as the Trans-Pacific Partnership, which promised an additional $4 billion to $5 billion of sales by opening Pacific Rim nations to U.S. meat, dairy, and grain. But pulling out of the TPP was one of Trump’s first acts as president. He’s also threatening to leave the North American Free Trade Agreement with Canada and Mexico. Both moves stoke worries that attempts to protect manufacturing could harm farmers, with countries such as China retaliating against taxes on finished goods exported to the U.S. by buying commodities elsewhere, says Ed Schafer, who served as agriculture secretary under President George W. Bush. “Trade issues are not as simplistic as President Trump thinks,” he says.
Bob Young, chief economist for the American Farm Bureau Federation, the largest U.S. farmers group, rattles off a series of competitors ready to eat the U.S.’s lunch: Brazil and Argentina in global corn and soybean markets; Ukraine and Russia in grain and oilseeds; Australia and New Zealand in meat and dairy.
Australia is still pushing for a TPP without the U.S., to lock in potential trade gains in Asia. Europe is buying more Ukrainian corn, enjoying lower tariffs that squeeze out U.S. suppliers who had hoped to gain from a European Union trade deal. Brazil and Argentina are becoming the first choice for Chinese buyers who wait for those nations’ spring harvests—when prices are lower—to make purchases.
Competitors are penetrating markets the U.S. once owned. “Mexico is right on the U.S.’s doorstep, and yet Russian wheat can and does price into Mexico,” says Swithun Still, director at Solaris Commodities, a trader in Russian grain, in Morges, Switzerland.
The U.S. has hurt its farm trade before, says Glauber, the former USDA official. A ban on grain sales to the Soviet Union after its 1979 invasion of Afghanistan jump-started South America’s development, and earlier moves during the Nixon administration gave Canada, Australia, and South America market opportunities they never relinquished. “You do not want to convince your customers they need to look elsewhere,” Glauber says.
For now, the shipments go on as usual along the Kaskaskia. Liefer says he thinks trade tensions will work out, in part because Trump respects the voters who put him in the White House—rural areas supported the president by a 2-1 margin in November. But he’s watching the new leadership closely. “Where we will be six months from now, that’s a different question,” he says. “I might have a different opinion.”
Source: Bloomberg
Link: https://www.bloomberg.com/news/articles/2017-02-16/should-farmers-fear-trump