The trade tariffs that were implemented last year by the current U.S. administration have taken its toll on the agricultural economy. As you are likely aware, in response to the import tariffs that the U.S. placed on many Chinese goods, the Chinese responded by placing tariffs on some of our U.S. exports.
The tariff that most affects the agricultural economy is the retaliatory tariff on U.S. soybeans. This has put many growers in a precarious position and has put the entire grain market into a protracted period of uncertainty.
Sam Clark, Area Representative with Halderman Real Estate and Farm Management, discusses the impact of current administration-initiated tariffs on U.S. agriculture, on growers and on owners of farm properties.
How tariffs are affecting the soybean and grain markets in the US
Clark notes that soybeans were among the first crops affected. "Last year, prior to the tariff implementation, soybeans had been in a fairly stable $10 per bushel market, and post-tariff, we saw prices dip into the $7 to $8 per bushel range by fall."
Some of this price swing was certainly due to supply factors and good soybean yields last fall. However, Clark comments that "a significant portion of the impact likely comes from the tariffs imposed by the administration."
We also saw corn prices dip last year. Like soybeans, some of this price reduction was due to above-average yields and oversupply. However, some of the decline in corn prices was tied to the decline in soybean prices and the correlation between the two commodities.
Are there any effects from the tariffs for farmland owners?
Clark estimates that most farmland owners have been impacted by the tariffs just like growers. With the lower grain prices have come lower farm incomes. For landowners that share in some of the revenue risks on their farms, that revenue has been hurt by the tariffs.
Farmland owners that lease their farm on shares or receive a portion of the crop have been hurt just like farmers have when they've sold their crop. However, landowners that cash rent their farms have also been affected.
"On many of the farms we manage, we use a flex rent lease that provides the landowner an opportunity for a bonus rent payment when revenue on their farm is above a certain threshold," says Clark. "Thus, lower grain prices can translate to lower or no bonus rent payments."
Even landowners that lease their farm on a flat cash rent basis have likely been affected. Overall, lower profitability for farmers has, in many areas, translated to less aggressiveness by farmers in renting land.
Therefore, land rents may not be as high as they would be had profitability and grain prices not been suppressed.
What does the future hold for agriculture, farmers and landowners with respect to the tariffs?
In 2018, the U.S. administration did provide some relief to producers that were feeling the effects of the tariffs by issuing Market Facilitation Payments. However, most believe that these subsidy payments will not be repeated for the 2019 crop year.
Moving forward, Clark believes the faster trade issues are resolved, the better. "It will help remove uncertainty in the grain market. The best thing growers and landowners alike can do is to let policymakers know how trade and tariffs impact their businesses and futures."
At Halderman Real Estate and Farm Management, we can help you navigate uncertain times and advise you with regard to the best way to handle your farmland. Let us know what questions you have or how we can help. Contact us today!