Midwest caught in the middle again

Tariffs and Farmland

As injurious as the weather has been to the Midwest farmers’ income, the real elephant in the room has been the Trump Administration’s prolonged tariff war with China. Although the region has generally supported the administration, patience is waning as financial woes grow. It is understandable as rhetoric and reality collide. Back in October of 2018, President Trump announced via The Ingraham Angle: “China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products - would be one of the best things to happen to our farmers in many years!”

It was one of many such pronouncements but little has helped the region. In August, Bloomberg said that Gary Wertish, president of the Minnesota Farmers Union drew applause at a country fair when he criticized the administration’s trade policy at a forum with Agricultural Secretary Sonny Perdue in attendance. It is fair to say there wouldn’t have been an applause in 2017.

The August edition of the Agricultural Newsletter for the Federal Reserve Bank of Chicago outlined the difficulties the region is facing. The newsletter reported that the credit conditions for the District are deteriorating, “The portion of the District’s agricultural loan portfolio reported as having “major” or “severe” repayment problems (6.2 percent) had not been higher in the second quarter of a year since 1999.”

The farmers’ financial situation has also been exacerbated by “sliding real farmland values” as the expectations for agricultural income have been restrained by the U.S.-China trade war.

The region is largely dependent on returns from soybean and corn crops. Because of the adverse weather, the yields are expected to be lower – which generally leads to higher prices. Corn and soybean prices have climbed 9.6% and 3.6% June over May but the increases have been limited as tariffs have hemmed in agricultural exports with more tariffs on the horizon.

Davie Stephens, president of the American Soybean Association (ASA) recently said in response to the next round of tariffs, “ASA has strongly requested an end to the tariffs on U.S. beans for more than a year. This escalation will affect us not because of the increasing tariff on our sales, which have been at a virtual standstill for months, but through time. The longevity of this situation means worsening circumstances for soy growers who still have unsold product from this past season and new crops in the ground this season – with prospects narrowing even more now for sales with China, a market soy growers have valued, nurtured, and respected for many years.”

It isn’t just the Midwest being affected. The impact of the tariffs is being felt throughout the entire agricultural sector. The USAD in September revised downward its estimates for U.S. agriculture. The agency says total agricultural exports will decline 6.2% from 2018 to $134.5 billion – potentially the lowest tally since 2016. Overall, the revised forecast would put the U.S. agricultural trade surplus at $5.2 billion – the lowest since 2006.