It’s no secret that retaliatory tariffs have impacted soybean prices negatively. However, if our trade disputes are resolved, one economist says prices could improve by 15%.
“You can't understate the importance of trade for U.S. agriculture, about one in every $4 or $5, depending on how you measure it, of farm income comes from foreign sources. So we need trade partners,” Jackson Takach, an economist with Farmer Mac told Clinton Griffiths on AgriTalk. “We have six major trading partners that have issued retaliatory tariffs affecting agriculture. Those six partners represent about 53% of all exports for U.S. agriculture.”
He says China, Canada and Mexico are the key players in terms of trade disruptions and soybeans have been hit hard.
“Soybeans are the big name there, we export about $12 billion worth of soybeans to China every year, about one in three acres of our soybean production goes to China,” Takach explained. “So, when they slapped on an extra 25% tariff that really affected prices.”
According to Takach, USDA’s “fairly negative picture” on net cash income for 2018 could be realized if nothing changes in the trade arena.
“If you look at [net cash income], certainly cash receipts are down, and cash expenses haven't moved that much,” he explained. “So, we're seeing a pretty big drop in just the imputed value of net cash income for farmers. If the trade picture doesn't move, that prediction will probably come into reality. We could see double digit declines in total net cash income year over year.”
However, recent movement on the North American Free Trade Agreement negotiations and an indication on Wednesday that the U.S. is willing to negotiate with China gives Takach hope.
“If you start to lift some of that veil of uncertainty, [net cash income reductions] could be pretty low,” he said. “If we can resolve some of these trade issues, I think there's actually a lot of upside for U.S. agriculture. But right now, if everything stays as it is, I think [USDA’s] outlook is probably pretty accurate.”
If the U.S. and China resolve their issues on trade, and they reduce the tariff on soybeans markets could see a 15% appreciation on price, Takach said.
“If you look at Brazilian prices, which is what I'm using to gauge sort of like a fair market price, [as] Brazilian prices had not declined at the same rate that ours did, we have about a 15% differential between the soybean prices here and soybean prices in Brazil,” he explained. “Once you've adjusted for the cost of shipping and all the currency issues, those two prices should be right on top of each other. And historically they are. So, if we can resolve some of these issues with China on trade, and they can reduce that tariff on soybeans, you could see at least a 15% price appreciation just to get back to that same level as Brazil.”
Additionally, Egypt is a growing and dynamic market for U.S. soybeans now, Takach said.
“We have a huge export market right now in Egypt,” he said. “We're sending a lot of our soybeans, I think about 1.3 million more metric tons of soybeans in 2018 than we did in 2017, which is a huge number. So, we have these other outlets for soybeans and let's say we resolve this issue with China, the demand for U.S. soybeans is going to be pretty fantastic.”