This summer is flying by. Fields are beginning to mature. From a production perspective, this has been an excellent year locally to date with timely rainfall and near ideal temperatures. Barring a major weather event, most farms locally will have excellent production. With that in mind, I will focus this newsletter on our agriculture markets. As recent calls and conversations indicate, this is an important topic to you and most anyone else associated with agriculture.
Trade Agreements & Tariffs: As you are all aware, agriculture is bearing the brunt of trade agreement negotiations with China, NAFTA, and others. It surprises me how many producers remain steadfast behind President Trump on his trade negotiation approach in spite of its effect on agriculture prices. Most of these supporters apparently did not live through or study the Carter imposed Russian Grain Embargo. Has anyone heard that we study history because history repeats itself? In 1975, the US and Soviet Union agreed on a bilateral trade agreement for over eight million tons of US food exports annually to the Soviet Union. The Soviet Union had increased their US grain imports substantially since the initiation of this agreement to what was anticipated to be 25 million tons beginning in late 1979 and into 1980. In December 1979, the Soviet Union began a hostile occupation of Afghanistan (it was actually a failed takeover). In response, Jimmy Carter in January 1980 placed a grain embargo on the Soviet Union believing the lack of food products shipped to the Soviet people would encourage the Soviet Union to reverse course in Afghanistan. In spite of a drought in the Soviet Union in 1979 which substantially reduced their domestic grain production, the Soviet Union did not relinquish to the US grain embargo. We live in a democracy where our voice is heard. The Soviet Union has historically shown that they put their nation’s interest ahead of their people’s interest. The Soviet Union survived our grain embargo by tightening their domestic grain use and by identifying and utilizing other grain sources.
Tariff Fallout: Today, the US is utilizing increased tariffs rather than an embargo to renegotiate multiple trade agreements. Again, agriculture is bearing the brunt with huge tariffs imposed by our trade partners on our agriculture products which impacts virtually every type of agriculture production including grains, meats, dairy, pecans, etc. In response, this morning’s Pro Farmer update indicates that Brazil is substantially increasing soybean production to record levels to help fill the soybean needs. Additionally, the Soviet Union is also offering to help China with additional crop production acres. You can rest assured that other countries are also making plans to increase their corn production. Mexico, our largest corn importer, has stated for months that they will find corn elsewhere. Since May 28 when tariffs escalated, local fall 2018 delivery corn is $.51/bu lower and fall 2018 soybeans are $1.91/bu lower. One commentary recently stated that the decrease in US grain revenue would have built the Mexico border wall twice.
Aid Package: President Trump has vowed that the US farmer will not bear the brunt of the current trade war. On June 24, President Trump announced a $12 billion aid package to agriculture. It is anticipated that this will include direct payments to farmers as well as the purchasing of surplus US agricultural production. It is important that the farmer remain profitable so that your lease income is not impacted, so this program should benefit the farmland investor too.
Summary: We are in a very challenging time for agriculture, which is impacting many producers. It appears that our bountiful 2018 grain production will help offset the lower grain prices for 2018. We will continue to monitor crop carryover, domestic use, and exports heading into 2019. Hopefully we can soon resolve our trade agreements with our key trading partners and put agriculture back on a profitable path for all. We will keep you updated along the way.