You are here

Painful Ag Restructuring if Sino-U.S. Trade War Persists

If there is no near-term resolution of the Sino-U.S. trade war, the Trump administration will need to spend billions of dollars in additional trade-war payments to farmers and ranchers or watch their income sink, said two economists on Monday. Either way, there would be painful restructuring in the sector, which has collected more than $10 billion in Trump tariff payments this year.

The economists, Brent Gloy and David Widmar, were among the first to discuss what would happen to export-oriented U.S. agriculture – which generate 20% of farm income – if the trade war drags on or if the fruits of victory are slow to materialize. U.S. and Chinese negotiators have haggled for weeks over a Phase One agreement that President Trump says will include Chinese purchases of up to $50 billion in farm products in two years.

“If the trade war were to last indefinitely, one should expect major pain and realignment in the U.S. farm sector, particularly in the row-crop sectors,” wrote Gloy and Widmar at their Agricultural Economic Insights blog. “These producers will be forced to continue to change commodity mixes and realign production. This will be economically painful. If the situation persists, the government will be required to continue to make large ‘adjustment’ outlays to agriculture or see farm incomes sink.”

Gloy and Widmar said the trade war is encouraging larger production among U.S. competitors, especially in South America. “As these additional production resources come online, it will likely add to already burdensome supplies and may produce a supply overhang that will last well after the trade dispute’s resolution.”

At the minimum, the trade war ended the brief race for acreage supremacy between corn and soybeans on U.S. farms, with corn as the No. 1 crop. China used to buy 1 of every 3 bushels of soybeans grown in America. The trade war halved U.S. ag sales to China.

The trade war also may bring a sustained shrinkage in plantings of corn, soybeans, and wheat, according to USDA’s 10-year projections. Plantings of these major crops averaged 227.1 million acres annually in the five years before the trade war intensified. The three crops are projected to average 221.1 million acres annually from 2020-2024, down 6 million acres, partly due to lackluster commodity prices. Corn, wheat, and soybeans account for 70% of land planted to the two dozen principal crops, which range from cotton and grains to millet, hay, potatoes, and chickpeas.

According to Tariffs Hurt the Heartland, a group that tracks the impact of the trade war, Chinese tariffs on U.S. products have totaled $12 billion since the start of the trade war. “These tariffs have focused heavily on American farm exports.” The group calculated the cost of the tariffs as $223 million for Iowa, $796 million for Minnesota, and $827 million for Wisconsin.

Chinese importers purchased around 300,000 tonnes of U.S. soybeans on Monday, according to U.S. exporters. The sales followed a government decision to waive retaliatory tariffs on 1 million tonnes of the oilseed, reported Reuters. It said China has purchased roughly 10 million tonnes of U.S. soybeans since the September 1 start of the current marketing year, compared with 21.5 million tonnes at this point in December 2017, before the trade war started.

So far, Midwestern growers are using the same planting, marketing and storage strategies as before the trade war because they expect it will not last long, said Iowa State University researchers last month. All but a small minority of farmers who took part in a Center for Agricultural and Rural Development study said their income fell in 2018 due to the trade war. Eight out of 10 said the trade war payments were helpful. “It is important to note that farmers experience significant income shocks but that did not affect their support for the president’s approach,” said the researchers.

In surveys by Purdue University, farmers and ranchers overwhelmingly say they expect to emerge from as winners in the trade war. They also expect the administration will issue billions of dollars in trade aid for the third year in a row in 2020.

Produced with FERN, non-profit reporting on food, agriculture, and environmental health.
Read more about

Tip of the Day

Tag-Along Hitch Makes Moving Equipment Easy

hook up and go - no trailer needed Every year I help a nearby farmer plant and harvest. Some of his farmland is 40 to 50 miles from us. When it came to tilling, we rethought... read more

Talk in Marketing

Most Recent Poll

What is your favorite social media platform?