Farmers will continue to face lower crop prices, despite recent tentative trade agreements. Until the agreements are formalized and in full affect, tariffs and overproduction will continue to keep prices lower than those of previous years, experts say.
Agricultural exports are an important part of the market because U.S. farmers produce more product than the country itself can use. Consistent and growing production rates combined with reduced exports drives prices down.
“Any trade agreement is going to be a positive factor for farmers, we raise more soybeans and corn than we can use in U.S. We need exports in order to market our crops,” Charles Brown, the farm management specialist for southeast Iowa from Iowa State University Extension and Outreach, explained.
Currently, a trade war unfolding with China has not only deprived agriculture a large market but has also included tariffs as much as 25 percent on imports and up to 10 percent for exports. With the tariffs, China has looked to different markets to fill gaps, especially in agriculture. Where the county had once imported most of its soybeans from the U.S., other markets in South America are picking up the slack.
Brown also noted there is a bit of a balancing act that occurs when markets shift. The smaller markets in South America are now buying from the U.S. to fill the void from trading with China.
“In 2018, Argentina was a big importer of soybeans and they have never imported from the U.S. before. China bought all of Argentina’s soybeans, and they need soybeans to run their crushers. Also, exports to Taiwan and Egypt are up considerable than what they have been,” Brown pointed out.
However, the smaller markets do not necessarily help U.S. farmers break even, especially in soybean trades, in which China acted as the largest buyer. In 2017, the Asian country was responsible for 30 percent of soybean exports from the U.S. With the tentative trade agreements, China has begun to buy larger quantities of soybeans again, but not at their former rate.
Farmers are cautiously excited about possible long-term gains from the momentary halt in the trade war.
Chad Hart, a crops market specialist and economist for Iowa State University Extension and Outreach, remarked that enthusiasm toward the new talks on trade between China and the U.S. have been “muted,” due to “fears that since they’re tentative, they can disappear.”
“Especially in the case with China, we have seen proposed deals go by the wayside that weren’t fulfilled and didn’t reach that final deal,” Hart said.
According to Hart, farmers are down 12 percent year over year in sales. Hart also noted that the university did a preliminary study on the long-term effects of the trade war, which show a $1 to $2 billion dollar impact for Iowa’s economy.
“There’s a large impact because we are such a large agriculture producing and exporting state. We have agriculture machinery, we’re big in that as well and [companies] that tend to export and import are impacted by the tariffs. The trade war has a large price tag,” Hart articulated.
Although China’s impact plays a major role on agricultural exports and prices, the economist also pointed to two other trade deals the U.S. still is waiting to ratify and work out that will benefit the agriculture economy.
The United States-Mexico-Canada Agreement (USMCA) and the U.S.-Japan Trade Agreement involve most of the country’s top trade partners. Canada follows China as the U.S.’s second largest export market, with Mexico falling under Canada as third. Japan is also one of the top ten trading partners for the country. Because the USMCA involves two of the U.S.’s biggest partners, Hart says the deal is one people are following most closely. Because the deals are made with already large trade partners, farmers would not see immediate spikes in growth and at most would see modest 5 to 15 percent gains in the short-term. However, the deals would help solidify long-term expansion.
“I think farmers have been willing to put up with short term pain, loss of pricing and trade, in the hopes of getting some long term trade stability. They haven’t been happy with trade policy and do understand it and do see potential benefits if we do get to some solid trade agreements. A lot of that positive depends on ‘if,’ if there’s not agreement, then all this pain with little to no gain,” Hart further explained.
“What they’d like to see is low to no tariffs between countries in agriculture trade, reasonable phytosanitary rules, and open access to markets. Especially in global agriculture, there’s actually very few places in the world that can produce more than enough food to meet the needs of a region, so it kind of needs to have trade. The U.S. is one of very few countries that can produce enough, so lower trade barriers means we would export a lot,” Hart said, describing gains those working in agriculture are hoping to see.
Farmers in southeast Iowa echoed Hart’s sentiments. Tom Adam, a soybean farmer from Harper, described the tentative agreements as “hopeful.”
Harper sees trade disputes as just one part of why prices have dropped, saying, “With the African Swine Fever issue in China, there just isn’t enough of a demand for soybeans. We’ve been overproducing so prices would have been down anyway. With the tariffs, it’s just worse.”
“If we can put together a better agreement with these countries, particularly China, that would be the best possible outcome. Yes, we want it to be fair, that would be great. Free markets are by far the most efficient way to allocate resources, eventually things will work out,” Harper said.
From the soybean farmer’s perspective, the obvious first move is to ratify the USMCA and then move to work out a trade deal with China. Following trade deals with big partners, Harper believes the best move is to expand into new markets.
“As always, we need to continue to expand markets to other countries like the EU and Egypt and Indonesia. If we want to look really long term, 20 to 30 years from now, I think our big gains will be in India,” Harper concluded.