Trade War Effects On Rural America

By Pat Karst

09 /24 /19

The Rural Main Street Index is a monthly survey of rural bankers in a 10-state Midwest region conducted by Creighton University. It is a measure of financial health in rural America. The latest report fell to the lowest level in two years.

The trade war with China and the failure to pass the United States Mexico Canada Agreement (USMCA) are the driving forces behind these results. Despite a nearly $16 billion federal support program, farm income is expected to decline.

Trade wars are draining our ag economy, but 7 of the 10 bankers surveyed support continuing or even raising tariffs on Chinese goods. This is despite the fact that 75% of the bankers believe the trade war has had a negative or very negative impact on the rural economy. They reason that winning the trade war will have a very positive impact on the economy.

Despite all this negative news, bankers only expect a 4% rate of farm loan defaults over the next 12 months. The farmland price index for August improved but is still below growth neutral for the 69th straight month.

The confidence index represents banker’s expectations for the economy in six months. The August results show a huge drop from July to the lowest rating since October 2017.

Farm income will be down for 2019 and possibly 2020 if the trade war continues and we cannot replace demand for U.S. commodities. Farmers will continue to struggle to make their debt payments, and their financial health will continue to erode. Cash rental rates and land values will see continued pressure as demand declines.

An interesting note is that while bankers think the tariffs have hurt the rural economy, almost 72% of them believe that we should either continue or raise the current tariffs. Hopefully, we will see long term financial health emerge from short term pain. Our experienced professional farm managers have the knowledge to help you make tough decisions today to keep you on track for future opportunities.