U.S. agricultural exporters are bracing for a rough harvest season that seems likely to result in dramatic reductions in crop prices, thanks in large part to overseas retaliation for President Trump’s tariffs on billions of dollars worth of imports.
By one measure, U.S. farmers haven’t lost anything yet. The June trade numbers released last week showed U.S. farm exports at $14 billion, just a shade under May’s level and still on pace to beat the value of exports seen in calendar year 2017.
But trouble is brewing, and other data put out by the government show export contracts to China for key commodities have slowed dramatically. China imposed tariffs on $34 billion worth of U.S. exports, a blow to U.S. soybeans, pork, and other agricultural goods, and the numbers are starting to show that damage is being done.
Last week, data from the U.S. Department of Agriculture showed total soybean exports to China for the marketing year ending this month were down about 20 percent compared to last year, a sizable drop given that soybeans are the biggest U.S. farm export to China. Total pork exports to China for the calendar year were down nearly 60 percent.
China’s tariffs on U.S. farm exports, which started on July 6, may not be the only cause of these sagging numbers. But the effects of China’s retaliation are only starting to be felt, and will make it even worse for farmers when the new crop comes in this fall. A USDA official acknowledged to the Washington Examiner that soybean producers and others may end up having to hold onto their crops because they will be shut out of China’s market.
“This is a multi-year adjustment if tariffs stay in place,” said the official, who asked to remain unnamed. “Producers will hold onto stocks this year and stick it in storage, and hold until they get a better price.”
He said a followup adjustment could be to plant less next year if the trade war isn’t resolved. The official indicated that’s a real possibility, since the U.S. is finding other buyers for U.S. commodities, including in Mexico, Taiwan, and the Middle East. But U.S. exporters are unlikely to find enough buyers to offset losses that will be seen in China.
“Overall, we expect to pick up a lot of trade we’ll lose to China, but not 100 percent,” he said. “Overall, I would say we’ll end the year below 2017… but there’s still a lot of time left in the year.”
All of that means extra supply, and that in turn means falling prices. A representative of the American Farm Bureau Federation, who also asked to remain anonymous, said even a little bit of excess supply can lead to a big drop in prices, which means farmers will have to sell their commodities for less if they choose to sell at all.
Some of that is already happening, as a significant portion of U.S. producers use futures contracts, and are already locked into selling at lower prices. For example, hog prices for a December contract are down about 25 percent, the Farm Bureau representative said.
“Twenty to 40 percent [of farmers] use futures contracts,” she added. “The rest will go to the elevator in the fall and say, ‘What will you give me?'”
The Trump administration moved last month to help farmers make up the difference, by authorizing up to $12 billion in payments to farmers who will see less from export sales. But the Farm Bureau source said even though that helped to build some confidence, there are reasons to worry that won’t be enough, as some estimates say that program will only add another $1 per bushel of soybeans, even though soybean prices have dropped by $2 a bushel.
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The Farm Bureau and other groups have urged the Trump administration quickly resolve the trade war so the tariffs can be dropped. But the looming crisis is entering a critical stage, as soybean exports surge usually soon after the harvest.
In a normal year, for example, about 50 percent of U.S. soybean sales to China are already complete by mid-November. That likely means a devastating export season for soybeans and other crops with similar harvest and export windows if the tariffs are still in place in three months.
For now, all farmers can do is watch for more data from the government about how bad it might get. July trade data from the Census Bureau will be out in early September, and later this week, a monthly USDA report will be out that could provide more clues.
The last monthly report introduced another factor that might be welcomed in other years, but this year is likely to hurt prices even more: a bumper crop.
“We’re all waiting for USDA and Census data,” the Farm Bureau source said.
