Editor’s Note: Jim Wiesemeyer, well-known economist and Washington Policy Analyst for Pro Farmer, is always interesting and informed on what’s happening in Washington, D.C. as it relates to agriculture. Wiesemeyer has spoken at several pork meetings I’ve attended this year, and also spoke this week at the Farm Journal Editorial Summit in Columbia, MO. Here are seven of his key insights on current news from Washington, D.C.
1. President Trump: “One year of Trump is like ‘dog years’ – each one feels like seven years,” Jim Wiesemeyer, Washington Policy Analyst for @ProFarmer, said, “But his bark is much worse than his bite.” The president’s opinions change hourly and Wiesemeyer says he could probably write three or four columns a day on what the president says or tweets. At any given hour, you don’t know “what Trump you’re going to get,” Wiesemeyer says. “He is variable, and he’s not going to change (if he were, he would have by now).” Will he work with Democrats? Wiesemeyer believes that if the Democrats take over one or both houses, he’ll have to work with the other side of the aisle if he wants to get anything done. History shows that an administration gets more done when they think from a bipartisan perspective, he says. “The president continues to do what he pledged during the campaign – that’s why farmers and ranchers are angry relative to trade policy, because of not just short-term losses, but also long-term concerns. It took us a decade to get back the trade we lost during the BSE issue,” he says.
2. Unsettled Politics: “We are in a world of disorder – new paradigms are being established,” Wiesemeyer says. “That’s why you’re seeing so many summits and meetings between Western country leaders.” In actuality, Wiesemeyer says if you want to know what the president is going to do or not do, just read his book, The Art of the Deal. He’s following it to a tee, according to the Pro Farmer analyst. He believes we’re seeing the beginning of a third party with Trump. “A country of our duration usually has at least three viable political parties, so this is long overdue,” he says.
3. China: “We’re in a China-centric world,” Wiesemeyer says. He says China could very well overtake the U.S. as the No. 1 world power. We shouldn’t be surprised – it took the U.S. from 1890 to the early 1900s to change the world currency from the British pound to the U.S. dollar. “I’m not saying the Chinese yuan will be the world currency,” he says, “but the country is becoming a global power. It’s investment in infrastructure is one example: China spends three times more than we do on infrastructure,” Wiesemeyer says.
Regarding the tariffs on goods to China, Wiesemeyer says that initially, Trump was surprised about the anger that was evident from the farm sector. “[Trump’s top trade advisor Peter] Navarro is to the right of Attila the Hun when it comes to trade policy,” Wiesemeyer says. “And he listened to Steve Bannon. Trump will never admit when he’s wrong, but he’ll take action that shows he’s willing to backtrack. We’re seeing that happen currently with what appears to be a ‘backing-off’ from the tariff war with China.”
4. Wave Election in the House? The president’s party normally loses seats in the mid-term so it’s likely the upcoming mid-terms will follow historical trends. “We can expect turnover in at least one chamber,” Wiesemeyer believes. He says that David Wasserman, who he considers a rising star in this industry, said there are two chances out of three that the Democrats will win the House but two chances out of three that the Republicans will retain control of the Senate. “Over the past 21 midterm elections, the President’s party has lost 30 seats in the House and an average of four seats in the Senate,” Wiesemeyer says. “In only two has the President’s party gained seats in both chambers.” He adds that all 435 seats in the House are in play. The Democrats need a net of 23 seats to reach a majority. Of the 35 seats up in the Senate, 26 are held by Democrats and only 9 by Republicans.
5. North American Free Trade Agreement: Wiesemeyer says the deadline for NAFTA 2.0 is in two weeks. “If it doesn’t happen by early June, it will likely move to 2019,” he says. “It’s coming to a head,” Wiesemeyer says. “It’s like the culmination of a series on Netflix – the end is coming.” He believes we will eventually have a new NAFTA agreement.
6. New farm bill. “It’s going to be approved in the House eventually, but the Republican leaders are going to need to sit down with leaders of the Freedom Caucus to make compromises. While the initial vote on the farm bill in the House failed, due to 30 Republicans joining all Democrats, House GOP leaders now have until June 22 to try another farm bill vote. Watch the immigration bill being pushed by House GOP conservatives. That vote must occur before the next farm bill vote. If the immigration measure fails, it is unclear if the Republicans who previously linked this issue with the farm bill will continue to vote against it.
7. U.S. Economy Factors: Wiesemeyer says retail sales are up but many consumers are saving their tax gains rather than spending them. As a result, the tax reform impact on the economy was less than expected. “Fiscal spending increases when the economy is on an uptick; trade policy tensions may temper economic gains; and the Federal Reserve is not unified on a monetary policy path,” he says. “Ten-year bonds went to 3% and are probably going higher for yields: That tells me the Fed thinks there are going to be three more interest-rate hikes.
“The dollar declined by more than 25% in 1973 and interest rates went to 18-20% in the mid-1980s,” Wiesemeyer says. Prior to the recent surge in the U.S. dollar, the dollar index was 9% below a year earlier. That helped exports. The dollar was going down and the Euro as going up. “It’s all baked into the futures prices as most believe Europe will start increasing its interest rates as well,” he says. But the past month or so has seen a big uptick in the value of the dollar, making U.S. exports less competitive. Coupled with rising energy prices, farmers are seeing increased transportation costs.
He believes 2018 is a pivotal year for the farm sector. “If you don’t have trend-line yields or greater this year in the Corn Belt, it’s going to be hard, hard, hard,” Wiesemeyer says. “Trade policy tensions are tempering economic gains. Also, the debt-to-income ratio is increasing, but the interest-rate environment is dramatically different from the 1980s.
“We’re not there,” he adds. “But you can substitute cash rent and land prices for the interest rates of the 1980s – that’s what some farmers and bankers tell me.”