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Is the Trade War Destroying US Agriculture?

With the trade war winding down, US farmers will have a lot to overcome.

A U.S.-China trade deal is imminent. This just in: Talks have fallen through, so it is uncertain as to when an agreement will happen. Officials have restarted negotiations and financial markets are ebullient about the prospect of a new pact that could overhaul relations. President Donald Trump tweets that tariffs will be increased and expanded. President Trump tweets that both sides could soon end the crippling trade war. American and Chinese officials are in a stalemate at the end of recent negotiations.

This is exactly how the U.S.-China trade fiasco has been developing since the president fired off the first round of tariffs. While it may create work for headline writers around the world, it has been devastating for American farmers who rely on the world’s second-largest economy to sell their agricultural goods.

Just Wheat a Minute

The Federal Reserve Bank of Kansas City (FRBKC) recently published its third-quarter report that examined farm finances across Tenth District agricultural states – Kansas, Missouri, Nebraska, and Oklahoma. The study authors assessed several factors, including commodity prices, costs, output, and effects of President Donald Trump’s trade war. What the researchers found was not a pretty conclusion for America’s food providers.

According to District bankers, farm income was weak and loan repayment rates tumbled in the July-September period. This was common across much of the industry, despite support from the federal government and a modest jump in prices for a handful of agricultural commodities.

FRBKC researchers wrote:

“Agricultural economic conditions in the quarter were influenced by uncertainty about crop production, agricultural trade and other factors that contributed to commodity price fluctuations. Persistent weaknesses in the sector put further pressure on farm finances and signs of modest increases in credit stress remained. Farmland values, however, remained stable, and provided ongoing support for the sector.”

Most bankers do anticipate agricultural credit conditions to worsen in the coming months, which was evident in one of the dozen charts published in the Q3 report.

Soy to the World

The overall agriculture sector has taken a beating for the last 18 months. A surge in storage costs, rotting inventories, lost income, and soaring debt levels. It has been a rural bloodbath.

As a result, U.S. farmers are filing for bankruptcy, says the American Farm Bureau (AFB) in a new report. The AFB found that in the 12 months ending in September, there have been 580 Chapter 12 farm bankruptcies, a 24% increase year-on-year. The highest number of filings were located in Wisconsin, with 48, followed by Georgia, Kansas, and Nebraska with 37. Also, Chapter 12 bankruptcy filings were at tenth-year highs in several states, including New Hampshire, Iowa, West Virginia, Minnesota, and Maryland.

Because of the slowing demand for tractors and farm equipment, Deere and Caterpillar have cut workforce levels. Deere eliminated 160 jobs in Illinois and Iowa, while Caterpillar trimmed 120 positions in Texas.

U.S. agriculture would typically trade approximately $20 billion with China every year. This figure has cratered to roughly $1 billion.

But White House officials say that this is short-term pain for long-term gain. President Donald Trump and his administration have announced that China will purchase up to $50 billion in domestic agriculture as part of phase one of the comprehensive trade agreement. This would more than double the record set in 2012 when Beijing imported $24 billion in agricultural goods.

China has been purchasing more U.S. goods, including soybeans and wheat. But Beijing could be playing both sides as the country booked new purchases of soybeans – 480,000 tons, or $173 million, worth of the crop – in the last two months from Argentina. China has been turning to foreign markets, such as Australia, Brazil, and New Zealand, for meat, fruit, and vegetables. Plus, the federal government has initiated a five-year plan to become less dependent on foreign soybeans by ramping up domestic output efforts.

In the end, analysts warn that it could be difficult for China to meet the $50 billion figure Trump has touted, especially as the country grapples with the African swine fever that has ravaged its pig supplies.

By Any Beans Necessary

It is unclear if the U.S. and China will sign the first phase of a new trade agreement next month. All the signs point to President Trump and President Xi Jinping agreeing to a landmark deal. But our hopes have been dashed before. It is not out of the realm of possibility that Xi or Trump scrap the pact, raise tariffs, and send markets spiraling downward. This would be horrific for consumers’ wallets, but it is the worst-case scenario for beef, corn, soybean, and wheat growers.

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Read more from Andrew Moran. 

Read More From Andrew Moran

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