China is vitally important to the U.S. as an ag trading partner: 50% of the soybeans the U.S. sends abroad are destined for Chinese ports. You can’t snap your fingers and replace that demand, even if every single one of the 130+ currently-in-negotiation trade deals are resolved to favorable terms for the U.S.
“And I keep pointing out to people that it is soybeans, but also other crops as well,” says Joe Glauber, former USDA chief economist and a current emeritus fellow with the International Food Policy Research Institute. He says 80% of U.S. grown sorghum is also exported to China.
Related: China Increases Tariffs to 125%: What Ag Exports Will Be Most Impacted
The last time these two world power ag markets were besieged with trade uncertainty, during the first Trump administration, soybean exports to China dropped 75% from the previous year, Glauber says. He also thinks it’s too early to get a long-term read on how the market will react to the Trade Wars, because tariff policy seems to shift as often as an eastern Iowa headwind.
And unfortunately, if you’re looking for a silver lining in the renewable fuels arena, Glauber also thinks it’s too early to know how that market will be impacted. There have been increases to domestic biofuels processing capacity over the last five years, but its hard to get a read on how EPA will approach the market.
“I don’t have a sense yet of how this EPA will operate,” he adds. “There’s always been tensions in those agencies between oil on the one hand and renewables on the other. Obviously, those would be good alternative markets for our soybeans if you can’t export, and going into invested crush would be a nice alternative, but we’ll see.”
Cotton is another domestic crop that is in a world of hurt, Glauber says. Acres are “really seeing a decline” and that’s not a one off this year either, it’s become a long standing trend at this point.
With soybeans, cotton, and even corn prices in a bad spot, one would presume there will be a wave of farm foreclosures hitting rural America this year. Thankfully, though, direct payments have helped stave off that potential nightmare, for now. But nevertheless, the threat is real and it looms large.
“Remember, we are getting a ton of money put into the sector this year from the bill that was passed by Congress in December,” Glauber says. “So that’s $31 billion coming in with $10 billion of that going out to farmers as direct income support to offset low margins. So, I don’t think we’ll see a lot of farms going out of business. But certainly, if these short, tight margins persist for a long time, then that’s going to affect people.”
Glauber is optimistic though that it won’t take a seismic “Big Bang” level event to punch up some upside into crop prices. He thinks some drought, or even “a little dryness showing up in the part of the world” would make the markets react positively.
“That tells me that stocks are still…it’s not burdensome that they’re really depressing prices,” he says. “But that said, I mean, these are low prices and relative to where we’ve been, margins are still tight.”
One area of American ag that is thriving right now is the protein side, with hog, beef, and poultry markets all “a bit of a different situation (going on) there,” Glauber adds.
You can listen to the full AgriTalk episode here.
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