U.S. Backtracks on Some Chinese Tariffs Until December

On Tuesday, the Trump administration announced that some recently announced tariffs on Chinese imports would be postponed until December.  And a report this week indicated that the ongoing trade war continues to be a factor impacting the soybean market.

Wall Street Journal writers Josh Zumbrun, Vivian Salama and Alex Leary reported on Tuesday that, “The Trump administration abruptly suspended plans to impose new tariffs on about $156 billion in goods from China, saying the move was driven by concerns about the impact an escalating trade fight would have on businesses and consumers ahead of the holiday shopping season.

“The shift fueled a rally on Wall Street, sending the Dow Jones Industrial Average up 1.44% to 26279.91.

But it wasn’t immediately clear if the retreat marked a significant step toward resolving the more than yearlong trade conflict between the U.S. and China.

Under the reprieve, the U.S. agreed to postpone until Dec. 15 tariffs of 10% on smartphones, laptops, toys, videogames and other products that were set to take effect on Sept. 1. The value of those goods imported in 2018 was about $156 billion, according to a Wall Street Journal analysis.”

The Journal writers added that, “Tariffs on other items, including tools, apparel items and some footwear, will still go into effect on Sept. 1.”

Don Lee reported on Tuesday at the Los Angeles Times Online that, “Trump’s decision to delay the tariffs was announced by U.S. Trade Representative Robert Lighthizer moments after he talked with China’s lead trade negotiator, Vice Premier Liu He. Lighthizer’s office said another call was planned in two weeks.”

In addition, Bloomberg News reported Tuesday that, “Chinese officials are sticking to their plan to visit Washington in September for face-to-face trade meetings, people familiar with the matter said, signaling that talks remain on track for now despite an abrupt escalation in tariff threats this month.”

“After rising nearly 65 mmt from 2006 to 2016, China’s soybean imports declined during 2018 for the first time in 15 years.” (Interdependence of China, United States, and Brazil in Soybean Trade, OCS-19F-01 USDA, Economic Research Service).

The Bloomberg article also stated that, “The U.S. on Tuesday delayed the imposition of some new tariffs after top negotiators spoke on the phone, with President Donald Trumpsaying the encounter was ‘very productive,’ and that he thinks Beijing wants to ‘do something dramatic‘ to end the impasse.

“That said, Chinese negotiators are not very optimistic of any imminent progress, one of the people said. Officials are unlikely to make concessions in the run up to October 1, the celebration of the 70th anniversary of the founding of the People’s Republic, the person said.”

Donald J. Trump@realDonaldTrump

As usual, China said they were going to be buying “big” from our great American Farmers. So far they have not done what they said. Maybe this will be different!

9:10 AM – Aug 13, 2019

Also Tuesday, Washington Post writers Damian Paletta and Heather Long pointed out that,

The announcement is the latest in a herky-jerky trade war between the White House and China.

“Trump has levied tariffs on $250 billion in Chinese imports, beginning last year, as he has tried to pressure Chinese leaders to change their trade practices. Chinese officials have negotiated but refused to agree to the terms Trump has demanded, leading to a prolonged standoff.”

Washington Journal@cspanwj

.@brianneDMR says Iowa farmers still support Pres. Trump on trade:

“These farmers say that something needs to be done about China… they question is how long can they hold out because this is becoming a problem for their bottom line. They are losing money”

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9:19 AM – Aug 13, 2019

Meanwhile, Donnelle Eller reported on the front page of Monday’s Des Moines Register that, “Iowa farmer Lindsay Greiner no longer uses ‘dispute’ to describe escalating trade tensions between the U.S. and China.

“‘I’ve tried to avoid calling this a war, but that’s what it really is. It’s not going to be resolved anytime soon,’ said Greiner, who raises corn, soybeans and pigs near Keota.

“China said this month it would no longer buy American farm goodsdeepening concern that a new trade deal could take months, if not years, to resolve.”

It was unwelcome news for Iowa and U.S. farmers, already facing spring flooding that kept many from planting crops, adding to struggles with low prices and growing supplies of corn, soybeans, pork and milk.

The Register article added that, “President Trump tweeted [last] Tuesday he could be counted on for continued trade assistance. His administration is sending out $16 billion in aid this year, following last year’s $12 billion trade bailout.”

Donald J. Trump@realDonaldTrump

As they have learned in the last two years, our great American Farmers know that China will not be able to hurt them in that their President has stood with them and done what no other president would do – And I’ll do it again next year if necessary!

7:36 AM – Aug 6, 2019

In its August Oilseeds: World Markets and Trade report on Monday, the USDA’s Foreign Agricultural Service (FAS) indicated that, “From the 10 years prior to 2018/19, global soybean exports nearly doubled in volume with annual growth averaging 7.5 million tons. Much of this growth was centered on China where import growth averaged 5.6 million tons annually, accounting for nearly 80 percent of soybean trade growth. With the arrival of African Swine Fever in China in mid-2018 along with the ongoing trade dispute, a steady decline in China’s soybean import volume has been observed with imports currently forecast to reach 83 million tons in 2018/19, 11 million tons below 2017/18. If not for the increase in demand from other markets, spurred in part by lower prices, the current trend in global soybean trade would have turned negative.”

Oilseeds: World Markets and Trade. USDA- Foreign Agricultural Service (August 2019).

The FAS update stated that, “Consequently, this slowing demand, coupled with large crops and stock building has led to soybean prices running 10 percent below even a few years ago. Given the potential for slow demand growth in China, rising soybean production in Brazil, and extensive stocks primarily in the United States, the prospect for soybean prices again approaching $10/bu ($370/ton) is greatly diminished.”

Oilseeds: World Markets and Trade. USDA- Foreign Agricultural Service (August 2019).

In addition, Bloomberg writers Isis Almeida, Mike Dorning, and Mario Parker reported on Tuesday that, “American farmers already stung by President Donald Trump’s trade wars now face billions of dollars in potential losses as controversial data from the U.S. government snuffs out a rally in corn.

“The Agriculture Department on Monday said farmers planted a bigger corn area than analysts estimated and pegged crop yields that also exceeded expectations, sparking the biggest rout in futures since 2013. That was a blow to growers who were holding back supplies, hoping a rally that started in May due to delayed sowing would extend through the fall.”

“U.S. Farmers Stung by Tariffs Now Face a $3.5 Billion Corn Loss,” by Isis Almeida, Mike Dorning, and Mario Parker. Bloomberg News (August 13, 2019).

The Bloomberg article added that, “The decline represents a potential loss of almost $3.5 billion for U.S. farmers, according to the American Farm Bureau, and is another setback for them after prices fell following the USDA’s previous acreage report, which was widely criticized for containing outdated data.”

Source: Farm Policy News

Adverse Corn and Soybean Price Scenarios for 2020 and 2021

Prospects are that soybean prices will continue to be low over the next several years, leading to a period of lower farm incomes.  Even given those prospects, prices could go even lower causing more financial stress to develop.  Herein, we present an adverse set of prices that could plausibly occur but are not likely to occur.  These prices are developed for a specific supply/demand situation using a scenario model developed at the University of Illinois for Compeer Financial.  Farmers and others may wish to use these adverse prices in pro forma cash flows to analyze stress that could result.

Background

Stress testing agricultural portfolios is a process that many agricultural lenders go through, partly to understand risks that their borrowers face and partly to ensure the lender themselves have adequate capital to sustain lending and continue to serve agriculture should unexpected stressful events occur.  When stress testing, an adverse set of prices and yields are created to stress incomes.  This set of prices and yields then are used to see how borrowers will fare under different modeling assumptions.

Herein, we present a scenario of baseline prices that are “likely” to happen the next several years barring any unforeseen events (e.g., weather disruption). This baseline may even be viewed by some as optimistic in context of the current markets. Keep in mind that this baseline represents only one set of “likely” prices out of a range of “likely” outcomes and a large degree of uncertainty remains, particularly, given the current growing and trade situation. Also presented is an adverse set of prices, which represents an adverse event that is plausible but unlikely.  This scenario is built using the Compeer Agricultural Scenario Builder, a model that is used to build a set of adverse set of prices for stress testing agricultural loans.

This scenario of prices is unlikely, and will result in deterioration of financial performance.  However, farmers may wish to construct cash flows and pro forma financial statements around this scenario.  Planning actions that would be taken if adverse conditions do result is part of good risk management.

Baseline and Adverse Scenarios

Baseline and adverse corn and soybean prices for 2019 through 2021 are shown in Table 1.  For 2018, average farm prices for the nation are $3.60 for corn and $8.50 for soybeans.  These are the same prices reported by U.S. Department of Agriculture (USDA) in the August 2019 World Agricultural Supply and Demand Estimates (WASDE) and represent prices for the 2018/2019 marketing year, which runs from September to August for both corn and soybeans.  The 2018 marketing year is not complete, but those likely will be very close to the ending values.

Baseline price for corn are $4.00 per bushel for corn in 2019/20, $3.80 in 2020/21, and $3.75 per bushel for 2021/22.  The beginning point for these baselines is a combination of the USDA August 2019 WASDE as well as the long-run USDA Outlooks released in February of 2019.  From there, several adjustments are made that result in deviations from both forecasts. The largest adjustments on the corn side are to assume lower harvested acres and lower yields than the August USDA WASDE. This reduction in supply results in a 2019/20 higher corn price forecast than USDA. These adjustments have been made to reflect realizations of 2019 growing and market conditions.  The baseline of the out-years then adjust because they are influenced in the model by the prior year. The adverse set of prices is $3.41 in 2019/20, $3.07 in 2020/21 and $3.02 in 2021/22.

Baseline prices for soybeans are $8.70 for soybeans in 2019/20, $8.76 in 2020/21 and $8.85 in 2021/22.  On the soybean side, a price adjustment is made to reflect a 2019/20 higher soybean price forecast than current USDA figures.  The out-years then adjust as well. The adverse scenario is $8.30 for 2019/20, $7.90 for 2021/21 and $7.56 in 2021/22.  The supply and demand scenario that potentially results in these prices is given in the following section.

Again, the adverse scenario is not likely, but it is plausible.  Somewhat sobering, baseline prices, particularly for soybeans, can be viewed as stressful in itself.

Economic Conditions Resulting in Adverse Scenario

The set of adverse prices shown in Table 1 are built around the following supply/demand scenario:

  • The U.S. economy weakens, leading to a mild recession. This mild recession causes sluggish demand for meats and other products, resulting in lower use of both corn and soybeans.
  • Ethanol demand stagnates, leading to reduced demand for corn.
  • The full extent of African Swine Fever becomes known in China and it is large. As a result, soybean exports to China fall, and rebuilding is very slow.
  • Trade relations between U.S., China, and other nations continue to be strained, leading to a continuation of tariffs on soybean exports from the U.S. to China.

Again, this is a plausible, though unlikely, scenario.

The implications of this supply and demand situation on price are shown in Table 2.  This is the corn scenario page from the Compeer Agricultural Scenario Builder.  There are two sets of columns: one for the baseline and one for an “adverse” scenario.  Rows closely match supply and use sheets produced by the USDA.  Rows first give assumptions about acres harvested and yield per acre.  Then sources of supply are given: beginning stock, production, and imports.  Then uses are given: feed and residual, food, seed, and industrial, and exports.  Subtracting supplies from use then gives ending stock.

An average price is reported at the bottom of the table.  This price is estimated by the model based on an econometrically fitted relationship from historical prices.  A price for a given year depends on the lagged price and ending stocks over use.  An increase in stocks over use will result in lower prices and vice versa.

The baseline scenario starts with the USDA August 2019 WASDE and the USDA long-run outlook (released February 2019). From there, modifications have been made to reflect 2019 growing and market conditions as described above.

The adverse scenario includes supply and demand conditions reflecting the supply/demand conditions listed above.  Those changes are highlighted in red:

  • Acres harvested are higher in the adverse scenario in 2019/20 as compared to the baseline creating stronger supplies than expected in 2019. (82.0 versus 80.4 million acres) Acres harvested are slightly lower in the adverse scenario in 2021/22 as compared to the baseline with low prices assumed to take some acreage out of production. (85.6 versus 86.6 million acres)
  • Yields in all three years are higher in the adverse scenario as compared to the baseline (169.5 versus 166.0 bushels per acre in 2019/20, 179.5 versus 178.5 per acre in 2020/21 and 181.5 versus 180.5 per acre in 2021/22)
  • Feed and residual are reduced in all three years to reflect a recession in the U.S. (5,125 versus 5,175 in 2019/20, 5,550 versus 5,650 million bushels in 2020/21 and 5,700 million bushels versus 5,775 in 2021/22).
  • Ethanol demand is reduced in all three years (5,375 versus 5,475 million bushels in 2019/20, 5,575 versus 5,725 million bushels in 2020/21 and 5,625 versus 5,725 million bushels in 2021/22).
  • Exports are reduced to reflect continuing trade difficulties (1,900 versus 2,050 million bushels in 2019/20, 2,350 versus 2,450 million bushels in 2021/22 and 2,400 versus 2,475 million bushels in 2021/22).

All of those changes will result in lower prices.  In addition, a -0.75 standard deviation shock is placed on 2019/20 and a 0.50 standard deviation shock is placed on the 2021/22 price (see first line of Table 2).  The fitted relationship estimates the price.  Based on historical prices, the price for 2019/20 is -0.75 standard deviations from the expected price, and the price for 2021/22 is 0.50 standard deviations from the expected price as we would not expect the price to go below $3.00/bushel.

Table 3 shows a similar output for soybeans.  Changes made to this scenario from the baseline are:

  • Acres harvested are slightly lower in the adverse scenario in 2021/22 as compared to the baseline with low prices assumed to take some acreage out of production. (81.8 versus 82.2 million acres)
  • Yield per acres is increased in 2020/21 and 2021/22 (52.6 versus 50.6 bushels per acre in 2020/21 and 52.1 versus 51.1 bushels per acre in 2021/22).
  • Crushing was reduced (2,065 versus 2,115 million bushels in 2019/20, 2,050 versus 2,100 million bushels in 2020/21 and 2,080 versus 2,120 million bushels in 2021/22).
  • Exports were reduced in all years (1,625 versus 1,775 million bushels in 2019/20, 1,700 versus 2,000 million bushels in 2020/21, and 1,900 versus 2,000 million bushels in 2021/22).

Again, all those changes result in reduced prices.

Summary and Commentary

Stress testing, not only from a lender’s perspective, but also from a farmer’s perspective can provide a better understanding of risks. A better understanding of the potential outcomes of these risks can help in planning and managing should they occur.

The adverse scenario arguably takes an already stressed outlook and adds further adversity.  A series of stressful events, including U.S. recession, further export disruptions and supply/demand imbalances, was assumed in the above to create a scenario resulting in several years of sustained adverse prices. While this scenario is not likely, it is based on a plausible set of assumptions. Farmers and others may want to use these adverse prices in pro forma cash flows to analyze the stress that could result.

Note that the prices presented in both the baseline and adverse scenarios make no assumptions around Market Facilitation Payments (MFP). Similar to 2018, MFP payments will be a significant component of incomes in 2019.  Without MFP payments, incomes are low even under baseline conditions. While the current trade situation results in very low prices, a continuation of MFP payments in 2020 could soften adverse financial results causes by lower prices.

Acknowledgements

Heidi Bubela is Analytics Manager at Compeer Financial (www.compeer.com) The Compeer Agricultural Scenario Builder described in this paper was developed at the University of Illinois.

Source: Heidi Bubela and Gary Schnitkey, Farmdocdaily

USDA Using Flexibility to Assist Farmers, Ranchers in Flooded Areas

The U.S. Department of Agriculture’s (USDA) Risk Management Agency (RMA) today announced it will defer accrual of interest for all agricultural producers’ spring 2019 crop year insurance premiums to help the wide swath of farmers and ranchers affected by extreme weather in 2019. Specifically, USDA will defer the accrual of interest on spring 2019 crop year insurance premiums to the earlier of the applicable termination date or for two months, until November 30, for all policies with a premium billing date of August 15, 2019. For any premium that is not paid by one of those new deadlines, interest will accrue consistent with the terms of the policy.

“USDA recognizes that farmers and ranchers have been severely affected by the extreme weather challenges this year,” said U.S. Secretary of Agriculture Sonny Perdue. “I often brag about the resiliency of farmers but after a lifetime in the business, I have to say that this year is one for the record books. To help ease the burden on these folks, we are continuing to extend flexibility for producers with today’s announcement.”

RMA Administrator Martin Barbre added, “This administrative flexibility is not unprecedented but is a move RMA takes seriously and only under special circumstances like we’re experiencing today. Growers typically have some crop harvested and cash flow to make their billing date, but with so many late planted crops, this year will be an anomaly.”

America’s farmers and ranchers have been especially challenged throughout the 2019 crop year, struggling through severe flooding and excessive moisture conditions across the grain belt and in many other rural communities, with some areas also dealing with extreme heat and drought. Such weather conditions are expected to take a serious toll on acres planted, crop yields, and crop quality as harvest begins. One of the largest operating costs for producers is crop insurance premiums paid to their Approved Insurance Provider. Many spring crop insurance premiums are due to be paid before October 1.

Without the interest deferral, policies with an August 15 premium billing date would have interest attach starting October 1 if premiums were not paid by September 30. Now, under the change, policies that do not have the premium paid by November 30 will have interest attach on December 1, calculated from the date of the premium billing notice.

Earlier this summer, USDA announced a series of flexibilities to reduce stress on producers affected by weather, including: providing more time for cover crop haying and grazing by moving the start date from November 1 to September 1, 2019; allowing producers who filed prevented planting claims then planted a cover crop with a potential for harvest to receive a $15 per acre Market Facilitation Program payment; holding signups in select states for producers to receive assistance in planting cover crops; and extending the crop reporting deadline in select states. USDA also will provide producers with prevented planting acreage additional assistance, which will be announced in the coming weeks, through the Additional Supplemental Appropriations for Disaster Relief Act of 2019.

Source: USDA

Perspectives on 2019 Corn and Soybean Acres-Impact of Prevent Plant

The Farm Service Agency (FSA) of the U.S. Department of Agriculture released county acreages for crops and prevent plantings based on acreage reports filed by farmers.  Even though prevent plant totaled 19 million acres in the United States, planted corn acres in 2019 are only slightly lower than 2018 values.  With notable exceptions, corn acres decreased in counties that had large areas of prevent planting and increased in acres with little prevent planting.  Soybean acres fell over the vast majority of counties in the United States.

FSA Acreage Data

FSA released their first set of 2019 county-level acreage data on August 1 (see Crop Acreage Data of FSA).  This data indicated that there were 85.9 million acres of corn planted in the United States, down by 1% from the 2018 plantings of 86.4 million acres (see Table 1)

The 2019 planting number (85.9 million acres) is expected to increase as FSA continues to update values monthly until January 2020.  From 2011 to 2018, corn acreage in the final January report averaged 1.8% higher than the initial August report.  However, in recent years, the increase has been much lower.  From 2016 to 2018, the January value was .7% higher than the initial August value.  A 1.3% increase – the average from 2011 to 2018 – would increase 2019 planted corn acres to 87.4 million acres.  A .7% increase – the average from 2016 to 2018 – would increase planted acres to 86.4 million acres, roughly the same as the planted acreage for 2018.

The August 2019 report indicated that 19.2 million acres were prevented from being planted, a substantial increase over the 2018 value of 1.8 million acres. From 2011 to 2018, the average acres of prevent planting is 4.8 million acres, with the highest acres of 9.6 million occurring in 2011. The 19.2 million acres of prevent plant would be more than double the 9.6 million high occurring in 2011.

The report also indicated that soybean acres declined from 87.7 million acres in 2018 to 74.0 million acres in 2019, a decrease of 16% (see Table 1).  Higher prevent plant acres resulted in lower soybean acres.  However, higher prevent plant acres did not lower corn acres, but there were large regional shifts in corn acres. With notable exceptions, those shifts were related to the amount of prevent planting.

Prevent Planting and Corn Acre Changes

Figure 1 shows prevent plant acres as a percent of total reported acres.  As can be seen in Figure 1, most counties in the country had less than 1% of their acres reported as prevent plant.  Prevent plant predominates in the corn belt, with the notable exception of northern and central Iowa.  Prevent plant also occurred in the upper Midwest, eastern seaboard, and in the Mississippi delta.  The following states have at least one county with over 24% of their acres as prevent plant: Arkansas, Illinois, Indiana, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Missouri, New Jersey, New York, Ohio, South Carolina, South Dakota, Tennessee, Texas, and Wisconsin.

Figure 2 shows the percent change in corn acres between 2018 and 2019 for those counties with at least 20,000 acres planted to corn in 2018.  Overall, corn acres in 2019 are down by 1% from 2018 values.  There were geographical dimensions to changes.  Many counties in North Dakota, Nebraska, Kansas, and the lower Mississippi Delta increased corn acres by more than 15% (see Figure 2).  Those 15% increases occurred in counties that typically had very low prevent plant acres.

Change in acres in Iowa, Illinois, Indiana, and Ohio are illustrative.  Iowa had many counties with low prevent plant acres, and total corn plantings increased 314,000 acres (3% increase).  Illinois had many counties with high levels of prevented planting, and corn planting decreased 532,000 acres (5% decrease).  Indiana also had significant prevent planting, and corn planting decreased 294,000 acres (5% decrease).  Finally, Ohio had substantial prevent planting, with corn planting decreasing 737,000 acres (15% decrease).

Soybean Acre Changes

Overall, soybean acres decreased in the vast majority of counties across the United States (see Figure 3).  Counties without much prevent plant typically had lower decreases in soybean acres than counties with more prevent plant.

Acreage changes in the three I-states illustrate the corn and soybean planting responses.  Counties in Illinois, Indiana, and Iowa were divided into categories based on the percent of acres that were prevent plant.  Sixty-four counties had less than 1% of their acres as prevent plant (see Table 2).  Those counties increased corn acres by 4% and decreased soybean acres by 7%.  Both corn and soybean acreage decreased as the percent of prevent plant acres increased, with corn having more substantial declines than soybeans.  Corn acreage increased by 4% for those counties where prevent plant acres were less than 1%, and held even when prevent plant was between 1% and 5%, but decreased 31% when prevent plant acres was above 20% of total acres. Soybean acres decreased by 7% when less than 1% of prevent plant acres, with a much larger decrease of -29% when prevent plant acres were over 20%.

Commentary

Acreage shifts from soybeans to corn were expected at the beginning of the year.  For example, USDA’s Prospective Plantings report released at the end of March suggested that corn planted acreage would be up by 4 percent and soybean acreage would be down by 5 percent.  The large amount of prevent planting significantly impacted acreage responses this year, but it seems clear that farmers cut soybean acres more than expected.  At the same time, corn acres were maintained at 2018 levels.  Among the possible explanations for maintaining corn acres while reducing soybean acres are:

  1. Corn was projected to be more profitable than soybeans for 2019 earlier in the year;
  2. Soybeans will have a large projected carryout at the end of the marketing year, reducing the chance of price increases;
  3. The Chinese trade war and African Swine Flu situation further clouded the price outlook for soybeans;
  4. Crop insurance guarantees were more favorable for corn than soybeans.  The corn projected price was $4.00 per bushel, roughly the same level as in the three previous years.  The soybean projected price was $9.54, over $.50 lower than projected prices in 2017 and 2018;
  5. Most farmers purchased Revenue Protection (RP), a product with a guarantee increase.  There were chances of a short crop year for corn, resulting in a higher harvest price and potentially larger crop insurance payments for corn; and
  6. Futures prices for corn where high relative to soybeans through much of May, June, and July.

In sum, many headwinds suggest a less than resilient soybean outlook and a more favorable corn price outlook.  This could have encouraged farmers to plant corn even into June.  In addition, USDA announced Market Facilitation Program (MFP) payments for 2019 that required farmers to plant acres to receive a payment, which could have prompted both corn and soybean plantings.

Finally, current values from FSA acreage data suggest slight decreases in corn acres.  National Agricultural Statistical Service (NASS) values suggest increases from 2018 to 2010: 89.1 million U.S. corn acres in 2018 to 90.0 million in 2019.  The increase in NASS planted acres differs from the slight decrease currently in FSA values.  If FSA values do not increase like has occurred in recent years, NASS planted acres may come down.

Source: Gary SchnitkeyNick PaulsonJonathan Coppess and Carl Zulauf, Farmdocdaily

Recent Perspectives on U.S. Farmland Values

On Thursday, the Federal Reserve Bank of Chicago released a report providing an outlook on farmland values and agricultural credit conditions for the second quarter of 2019.  Recall that other Federal Reserve Districts released similar reports last week.  A summary of Federal Reserve District agricultural land value and credit reports from the first quarter of 2019 can be found here.  Meanwhile, recent updates from USDA’s National Agricultural Statistics Service and Purdue University have also provided additional perspective on farmland values.

Federal Reserve Bank of Chicago

David Oppedahl, a Senior Business Economist at the Chicago Fed, explained in The AgLetter that, “Farmland values for the Seventh Federal Reserve District were down 1 percent in the second quarter of 2019 from a year earlier.

Graph from the Federal Reserve Bank of Chicago, AgLetter (August 2019).

“However, values for ‘good‘ agricultural land in the District were unchanged from the first quarter to the second quarter of 2019, according to a survey of 157 bankers.

Excessive precipitation in the spring led to historic flooding and widespread planting delays across most of the Midwest. Reporting bankers indicated that 69 percent of their borrowers were at least modestly affected by extreme weather events in the first half of 2019.

The AgLetter noted that, “In the second quarter of 2019, agricultural credit conditions for the District were weaker compared with a year ago once again. Repayment rates for non-real-estate farm loans were lower in the second quarter of 2019 than a year earlier. 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 Chicago Fed indicated that, “Overall, District farmland values were the same in the second quarter of 2019 as in the first quarter. Yet, there was a year-over-year decrease of 1 percent in District agricultural land values (the first such decline since the third quarter of 2017). Iowa and Michigan had year-over-year dips in their farmland values, but IllinoisIndiana, and Wisconsin farmland values held steady (see map and table below, but note that too few Michigan bankers responded to report a numerical change in farmland values).”

Graph from the Federal Reserve Bank of Chicago, AgLetter (August 2019).

Thursday’s update explained that, “Muted expectations for farm income continued to be a factor in sliding real farmland values. A significant portion of Midwest farm income depends on the production of two primary crops: corn and soybeans. Because of unusual wetness, many farmers had to delay planting corn and soybeans this year, and a much higher share of fields than normal were not even planted in 2019. According to responding bankers, 45 percent of their agricultural borrowers were modestly affected by bad weather conditions in the first half of the year and another 24 percent were significantly affected.”

ChicagoFed

@ChicagoFed

UPDATE: “In the long term, some of these #agricultural markets will not come back.” David Oppedahl discusses #tariffs, weather and deteriorating #credit conditions for the the Midwest agriculture industry in a new AgLetter. https://www.chicagofed.org/publications/agletter/2015-2019/august-2019 …

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3:12 PM – Aug 15, 2019

The report added that, “With lower yields expected across the Midwest, corn and soybean prices should adjust upward. Indeed, corn and soybean prices climbed 9.6 percent and 3.6 percent, respectively, in June from May.

Farm Policy@FarmPolicy 

The average price received by #farmers for #corn during June in #Iowa was $3.95 per bushel. This was up 36 cents from the May price and 41 cents above June 2018, @usda_nass

View image on Twitter

2:39 PM – Jul 31, 2019

However, tariffs on agricultural exports are limiting how much these crop prices can increase. It seems unlikely that these prices will rise enough to compensate for lost output, so the profitability of many corn and soybean farms will almost surely fall from their 2018 levels—possibly by a lot for some.

Looking ahead, the Chicago Fed stated that, “Even with crop output expected to fall, most survey respondents anticipated District farmland values would be stable in the short term, as 83 percent of responding bankers projected no change in farmland values for the third quarter of 2019.”

USDA- NASS, Land Values 2019 Summary

More broadly, USDA’s National Agricultural Statistics Service (NASS) released its annually Land Values summary last week, which stated that, “The United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,160 per acre for 2019, up $60 per acre (1.9 percent) from 2018. The United States cropland value averaged $4,100 per acre, an increase of $50 per acre (1.2 percent) from the previous year.”

“Land Values 2019 Summary.” USDA- National Agricultural Statistics Service (August 2019).

“Land Values 2019 Summary.” USDA- National Agricultural Statistics Service (August 2019).

John Newton@New10_AgEcon 

Over the last five years a handful of states have seen #agricultural and #farmland values decline, @IowaFarmBureau -14%, @NEFarmBureau -8%, @KSFarmBureau -5%, @ILFarmBureau -3%, @INFarmBureau -4%, @ndfb -3% & @NVFarmBureau -4% @FarmBureau

View image on Twitter

9:32 AM – Aug 7, 2019

Purdue University- A Closer Look at Indiana Farmland Values

With respect to Indiana farmland values, the Purdue Agricultural Economics Report this month pointed out that, “Statewide the 2019 Purdue Farmland Value Survey indicates farmland values moved lower.

Purdue Agricultural Economics Report. “2019 Indiana Farmland Values and Cash Rents Slide Lower,” by Craig Dobbins (August 2019).

“June year-to-year farmland value comparisons indicate top quality farmland declined 5.3%, average quality farmland declined 0.9%, and the poor quality farmland decline was so small it resulted in a 0.0% change.”

Source: Keith Good, Farm Policy News

Adding Alfalfa to Corn-Soybean Rotation can Increase Profit, Reduce Nitrate Leaching

Wellhead protection areas of many Nebraska towns have been threatened with high aquifer nitrate levels. Alfalfa in rotation with annual crops has long been recognized as a means to reduce nitrate leaching.

Research has shown that in a 9- or 10-year rotation cycle with five years of corn and soybean rotation and four or five years of alfalfa, mean profit was 9% more with alfalfa in the rotation than with a continuous corn-soybean rotation for owned land. Applied fertilizer-N may be reduced by 66% with alfalfa in the rotation. In addition, alfalfa roots can be expected to deplete soil nitrate to a 10-foot depth (Kranz, et al., 2005).

Alfalfa will use the nitrate applied in irrigation water, reducing nitrate in the aquifer. If an average of 16 inches per year of irrigation water with 15 ppm nitrate-N is applied during a five-year stage of the alfalfa in a 10-year rotation cycle, about 270 lbs/ac of nitrate-N would be removed from the aquifer. If the alfalfa crop reduces soil nitrate-N to a 10-foot depth by an average of 5 ppm, about 240 lbs/ac of nitrate-N would be removed from the soil. Addition of alfalfa to the rotation may be a cost-effective means of reducing aquifer nitrate concentrations.

spreadsheet calculator was developed to compare the profitability of rotations that include alfalfa with the corn-soybean or corn-soybean-wheat rotations. The rotations compared were:

  1. Continuous corn-soybean (C:S) rotation;
  2. Alfalfa (A) summer-sown following oats (O) (10-year rotation of C:S:C:S:O:A:A:A:A:A:C:S:C:S:O:A….);
  3. Alfalfa (A) spring-sown following corn (9-year rotation of C:S:C:S:C:A:A:A:A:C:S:C:S:C:A….); and,
  4. Alfalfa (A) spring-sown following corn (10-year rotation of C:S:C:S:C:A:A:A:A:A:C:S:C:S:C:A….).

The calculations were done for irrigated production in Knox County. Assumed yields were:

  • 220 bu/ac for corn following soybean;
  • 231 bu/ac for corn following alfalfa;
  • 60 bu/ac for soybean;
  • 3.5 t/ac with late summer sowing and 2.5 t/ac with spring sowing for first year of alfalfa; and
  • 6 t/ac for other years of alfalfa.

Grain prices used were: $3.50/bu for corn; $8/bu for soybean; and $125/t for alfalfa hay. Calculations were for rental and for owned land, and for no-till and tilled. Costing was at custom rates for all oat and alfalfa operations and with grower owned equipment for corn and soybean operations.

Rotations with alfalfa had an average of 7% more profit than the corn-soybean rotation. With no consideration of federal farm program disaster payments or crop insurance indemnities.2 The mean net profit was $-24.39/ac for the corn-soybean rotation and $-12.80/ac for rotations with alfalfa for rented land at $250/ac, and $160.61/ac for C:S and $172.20/ac for rotations with alfalfa for owned land. The most profitable rotation was No. 4 (alfalfa (A) spring-sown following corn in a 10-year rotation of C:S:C:S:C:A:A:A:A:A:C:S:C:S:C:A). 

In conclusion, there is an opportunity to reduce the loss of nitrate to aquifers and increase the extraction of nitrate from aquifers by including alfalfa in crop rotations while improving profitability.

References

Kranz, W.L., C.A. Shapiro, B.E. Anderson, M.C. Brumm, M. Mamo. Effect of swine lagoon water application rate and alfalfa harvest frequency on dry matter production and N harvest. 2005. Applied Engineering in Agriculture. 22(2):211-216. Depletion of soil nitrate-N with alfalfa was studied at the University of Nebraska-Lincoln Haskell Agricultural Laboratory near Concord.

2Traditional USDA-Farm Service Agency (FSA) farm programs account for historical base acres instead of actual plantings when determining disaster assistance. Incorporating alfalfa in a crop rotation does not limit the ability to participate in federal disaster programs as the payment would be the same regardless of the qualified disaster assistance. Crop insurance indemnities will vary based upon the actual crops planted and change in market prices throughout the growing season. Future indemnities remain hard to predict due to uncertainties in farm-level yields and prices.

Source: University of Nebraska CropWatch

2019 Corn Yield Forecasts as of July 31

This article summarizes the simulated crop stages and yield forecasts performed on July 31 for 37 locations across the US Corn Belt; the data can be viewed here. Details on the underpinning methodology to simulate phenology and forecast end-of-season yields, as well as on interpretation and uses of yield forecasts, are described in a previous article.

During the last two weeks, night temperature tended to be above normal in Iowa, Illinois, Indiana, and Ohio. Despite episodic heat waves, temperature has remained near normal in the other states. In the case of rainfall, most locations exhibited near-normal rainfall, except three sites in Kansas and portions of Illinois with rainfall below normal and some sites in Ohio, Minnesota, and North Dakota with above-normal rainfall. A summary of weather conditions during the last two weeks is shown in Figure 1.

The delay in crop development as a result of late planting has not translated into a high probability of early frost damage at the majority of the sites in Iowa, Illinois, and Missouri. In contrast, the risk of early killing frost has increased compared with a normal year in northeastern Nebraska (Concord, O’Neill, and Elgin), western Nebraska (North Platte and Alliance), Minnesota, North Dakota, Ohio and the site in Indiana.

Simulated Corn Stage across 37 Locations

Corn has reached silking stage across most of the Corn Belt, except for the eastern fringe where it is still in vegetative stages. As forecasted in the previous article, sites in Kansas, Missouri, and southern Nebraska, Iowa, and Illinois are well ahead of the rest of the locations, and corn is now between blister and dough stage (Figure 2). Overall, corn in the entire region is at an earlier developmental stage compared with the previous 2018 crop season.

Irriated growth stage as of July 15, 2019
Rainfed phenology as of July 15

Figure 2. Simulated developmental stage for irrigated and rainfed corn at each location. R1: silking; R2: blister; R3: milk; R4: dough; R5: dent.

Irrigated Corn: Near Or Above-Average Yields

The range of forecasted irrigated corn yield potential for each location, as well as the probabilities for yields above, near, or below average, are shown in Figures 3 and 4 and in Table 1. There is a relatively small chance (<25%; that is, a less than one in four) to have below-average yield potential across all irrigated sites. The chance of getting below-average yield is mostly associated with early-killing frost in the fall which, as mentioned previously, has increased in northeastern Nebraska. Weather during the rest of the season, especially temperature during the first two weeks of August, will determine if yields will ultimately be near or above average.

Yield plot of irrigated sites
Yield plot of dryland sites

Figure 3. Vertical lines indicate the range of forecasted 2019 corn yield potential by July 31 for irrigated and rainfed corn based on average planting date in 2019 at each location. Horizontal lines indicate the 25th and 75th percentiles of the yield distribution (associated with respective adverse and favorable weather scenarios during the rest of the season). The blue squares indicates the long-term (2005-2018) average yield potential at each location.

Rainfed Corn: Low Probability of Below-average Corn Yields in 2019

Forecasted yield potential is highly variable across rainfed sites, but in general, the scenario looks favorable (Figures 3 and 4, Table 1). There is a high probability  (>75%; that is, more than three out of four chances) of above-average yield at 10 sites, mostly located in Nebraska (three sites) and Kansas (three sites). The scenario is less clear for the other rainfed sites, although it seems that the chance of below-average yields is relatively low. Abundant and well distributed rainfall have determined a high probability to obtain near or above-average yields at many sites despite crop development running behind last year.

Map of forecasted irrigated yield deviation as of July 31
Rainfed yield deviation

Figure 4. Probability of the 2019 yield potential to be below (<10%, red color), near (± 10%, yellow color), and above (>10%, green color) the long-term (2005-2018) average yield potential at each location. The larger a color section is within the pie chart, the higher the probability that end-of-season corn yield will be in that category.

Conclusions

Corn in most parts of the region has already reached the silking stage and is currently between the blister and dough stages in the southwestern fringe of the region (Nebraska, Kansas, and Missouri). Probability of early-killing frost during the fall has increased in many regions (northeastern Nebraska, North Dakota, Michigan, Minnesota, Indiana, and Ohio). For both rainfed and irrigated corn, there is a low probability of below-average yields at the majority of the sites. For rainfed corn, above-average yields are expected for nine locations, mostly located in Nebraska and Kansas. Temperature and rainfall during the rest of August will likely determine the trend for the other rainfed sites.

These forecasts do not take into consideration problems with stand emergence, hail/flooding damage, replanting situations, disease, or nitrate leaching. In fields negatively affected by these constraints, actual yields will be lower than estimates provided here. It is important to keep in mind that yield forecasts are not field specific and, instead, represent an estimate of average on-farm yield for a given location and surrounding area in absence of the yield-reducing factors mentioned here. Likewise, crop stages and forecasted yields will deviate from the ones reported here in fields with planting dates or hybrid maturities that differ markedly from those used as the basis for the forecasts. We will follow up with further forecasts on August 20.

Patricio Grassini, Associate Professor of Agronomy and Horticulture, Extension Cropping System Specialist and Water for Food Institute Fellow; Jose Andrade, UNL Research Assistant Professor of Agronomy and Horticulture; Juan Ignacio Rattalino Edreira, Research Assistant Professor; Gonzalo Rizzo, UNL Ph.D. Student; Haishun Yang, Associate Professor of Agronomy and Horticulture and Water for Food Institute Fellow; Keith Glewen, Extension Educator, and Jennifer Rees, Extension Educator;
Jeff Coulter, 
Professor and Extension Specialist, University of Minnesota

Mark Licht, Extension Cropping System Agronomist, and Sotirios Archontoulis, Assistant Professor, both at Iowa State University
Ignacio Ciampitti, 
Crop Production and Cropping System Specialist and Assistant Professor of Agronomy, Kansas State University
Ray Massey, 
Extension Professor, University of Missouri
Peter Thomison, 
Extension Specialist and Professor, Ohio State University

Source: University of Nebraska CropWatch

Farm Economy-Loan Repayment Rates, Debt, Bankruptcy, and Production Expenses

Recent news items have highlighted variables associated with the agricultural economy, including: loan repayment rates, debt levels, bankruptcy filings and agricultural production expenses.  Today’s update includes a brief recap of some of these articles and reports.

Market Intel update last week from the Farm Bureau stated that, “Following several years of low farm income and rising debt levels, a review of Federal Deposit Insurance Corporation quarterly call report data reveals that the delinquency rates for commercial agricultural loans in both the real estate and non-real estate lending sectors are at a six-year high.

“For the first quarter of 2019, 2.5% of commercial real estate loans in agriculture were more than 30 days past due, up from 2.1% in the prior quarter and above the long-run average of 2.1%. Similarly, 2.2% of non-real estate loans in agriculture held by commercial lenders were more than 30 days past due, up from 1.5% in the prior quarter and above the long-run average of 1.6%. The first quarter of 2013 was the last time delinquency rates were this high for commercial lenders. Figure 1 [below] highlights the delinquency rate for both real estate and non-real estate loans held by commercial lenders.”

“Farm Loan Delinquencies and Bankruptcies Are Rising.” Farm Bureau -Market Intel (July 31, 2019).

Last week’s Farm Bureau update added that, “As annual average loan delinquency rates have increased for 24 consecutive quarters, so too have farm bankruptcies over the prior 12 months. Through June 2019, and over the prior 12 months, there were a total of 535 Chapter 12 bankruptcy filings, up 13%, or 60 bankruptcies. The number of Chapter 12 filings over the previous 12 months is the highest level since 2012’s 582 filings. The increase in bankruptcy filings is a noteworthy shift given bankruptcy levels fell during calendar year 2018 compared to 2017.”

On Friday, Matt Egan reported at CNN Online that, “Banks in America’s heartland have found themselves in the crossfire of President Donald Trump’s trade war with China.

The tit-for-tat tariffs with China ‘certainly’ have negative consequences for banks in farm states, FDIC Chairman Jelena McWilliams told CNN Business in an interview on Wednesday. McWilliams, who was nominated to her post by Trump, said the precise impact is difficult to measure.”

The CNN report indicated that, “With farmers under fire, delinquencies on agriculture loans held by commercial banks have tripled since mid-2015 to an eight-year highaccording to the St. Louis Federal Reserve Bank.

“‘We may experience more delinquencies, which then become very difficult for those communities and our ag sector,’ McWilliams said.”

Meanwhile, Washington Post writer Annie Gowen reported on Saturday that, “The feed chopper was the only machine Bob Krocak ever bought new, back when he was starting out as an ambitious young dairy farmer.”

The Post article explained that, “Now, on a chilly Saturday morning, Krocak, 64, was standing next to the chopper in the parking lot of Fahey Sales Auctioneers and Appraisers, trying to sell what he had always prized. The 128 Holsteins were already gone, sold last year when his family quit the dairy business after three unprofitable years.

“Krocak needed the money to stave off bankruptcy and hold on to the land that has been in his family since 1888.

Hundreds of other farmers around the country, grappling with rising debt, dismalcommodity prices and the fallout of the Trump administration’s trade wars, are facing the same fate.

“Net farm income has dropped by nearly half in the past five years, from $123 billion to $63 billion.”

“Left Behind- Farmers fight to save their land in rural Minnesota as trade war intensifies,” by Annie Gowen. The Washington Post (August 3, 2019).

More broadly, a chart update from USDA’s Economic Research Service last month pointed out that, “Farm sector debt has reached levels near the peak levels of the late 1970s and early 1980s.

“Farm Sector Debt at 30-Year High, But Interest Expenses Remain Low.” USDA- Economic Research Service, Chart Gallery (July 22, 2019).

“High levels of debt increase a farm’s risk of going out of business.

From 1993 to 2017, real (inflation-adjusted) farm debt increased by 87 percent, or 4 percent per year on average. ERS forecasts farm debt to increase 2 percent in both 2018 and 2019.

When adjusted for inflation, total farm sector debt in 2019 is forecast to be 4 percent ($4 billion) below the peak reached in 1980.”

With this background in mind, Reuters writer P.J. Huffstutter reported on Friday that,

With farm bankruptcies rising and agricultural debt loads soaring, the U.S. Senate has passed a bill that will make it easier for more farmers with larger amounts of debt to file for bankruptcy protection.

“The bipartisan bill – called the Family Farmer Relief Act of 2019 – raises the ceiling on how much debt producers who file for Chapter 12 bankruptcy can have, to $10 million from the previous $4 million.

“Chapter 12 is a part of the federal bankruptcy code that is designed for family farmers and fishermen to reorganize their debts. It was created during the 1980s farm crisis as a simple court procedure to let family farmers keep operating while working out a plan to repay lenders.”

The Reuters article noted that, “It costs far more now to run a U.S. farm than it did 30 years ago, according to U.S. Department of Agriculture data. Without this change to the law, bankruptcy experts say, farmers whose debts exceed $4.15 million are forced to use Chapter 11 bankruptcy protection, which is more costly and onerous.

“The legislation, passed by the Senate on Thursday and earlier by the U.S. House of Representatives, is headed to the White House for President Donald Trump to sign, lawmakers said on Friday.”

With respect to production expenses, the USDA’s National Agricultural Statistics Service (NASS) released its annual Farm Production Expenditures report for 2018 on Friday.

The report stated that, “Farm production expenditures in the United States are estimated at $354.0 billion for 2018, down from $357.8 billion in 2017. The 2018 total farm production expenditures are down 1.1 percent compared with 2017 total farm production expenditures.”

Farm Production Expenditures 2018 Summary. USDA, National Agricultural Statistics Service (August 2, 2019).

“In 2018, the United States total farm expenditure average per farm is $175,169, down 0.4 percent from $175,935 in 2017,” the NASS report said.Source:

Keith Good, Farm Policy News

What’s Going on with Corn Prices?

The December futures price of corn fell back to levels not seen since late May in last week’s trading despite substantial uncertainty regarding acreage and yield for the 2019 crop.  A mild weather outlook, weak ethanol production, and dwindling corn exports spurred much of this movement.  The recent escalation of the trade war with China drives much of the recent weakness.  Supply considerations remain a concern and hold the key to any price rally in corn markets.

The potential for 2018-19 ending stocks increasing by 100 million bushels over the current USDA projection of 2.34 billion bushels is high.  A recent softening in weekly ethanol production and continued weakness in exports places a carryout near 2.435 billion bushels in place.  USDA estimates corn exports at 2.1 billion bushels this marketing year.  Exports through June total 1.84 billion bushels, down over 5 percent from last year over the same period.  Accumulated exports through August 1 came in at 1.96 billion bushels.  With slightly over four weeks left in the marketing year, an additional 140 million bushels of exports is required to reach the current USDA estimate.  Export inspections must average 32.6 million bushels per week.  For the four weeks ended August 1, weekly export inspections averaged 23.9 million bushels per week.

Outstanding sales for this marketing year through July 25 total 153 million bushels with China accounting for almost 11 million bushels.  For the 2019-20 marketing year, there are no recorded outstanding sales of corn to China.  Weakness in corn prices related to trade negotiations hinges on concerns about economic growth and general risk in commodities as a whole.  While export demand remains uncertain, the recent pace of export inspections indicates exports may fall 40 million bushels short of the current estimate.

Weekly ethanol production weakened over the last couple of weeks.  Tight ethanol profit margins indicate a continuation of the subdued pace of production through August.  Current USDA estimates of corn use for ethanol sit at 5.45 billion bushels for the marketing year.  Through June, corn used in ethanol production totaled 4.47 billion bushels.  Based on estimates of corn use using EIA weekly ethanol production, corn consumption for ethanol as of July 26 is approximately 4.87 billion bushels.  If ethanol production matches the levels seen in July over the next month, corn use for ethanol production may fall 50 – 70 million bushels short of the USDA estimate.  If we assume lower demand from ethanol and exports through August, a 2018-19 ending stocks of 2.435 billion bushels appears feasible.  The recent drop in corn prices may mitigate some demand loss.  While lower consumption holds bearish information, the prospects for corn production this year make recent corn price movements appear overdone.

Acreage and yield concerns remain prevalent when considering supply for the 2019-20 marketing year.  It may be useful to determine the acreage priced into the market using the USDA consumption forecast.  The relationship between the seasonal average farm price and the stocks-to-use ratio provides some insight into this question.  The USDA estimates the average cash prices received and the average closing futures price for each month during the marketing year.  Using the difference over the last five years as a basis for the calculation, the closing futures prices on August 2 indicated a marketing year farm price of $4.04 per bushel.  For this analysis, a $4.04 average farm price relates to a stocks-to-use ratio of 13.5 percent for the 2019-20 marketing year.  The estimated relationship between price and the stocks-to-use ratio uses data from the last ten marketing years.

The recent projection for corn use sits at 14.255 billion bushels.  The prospect of corn consumption at the projected level remains dependent on this year’s crop size.  By assuming the current USDA total use for the next marketing year, a stocks-to-use ratio of 13.5 percent infers ending stocks for the 2019-20 marketing year at 1.925 billion bushels.  Using beginning stocks of 2.435 billion bushels and an import level of 50 million bushels during 2019-20, the corn crop implied by the current market price equals 13.695 billion bushels.

Assuming the 2019 U.S. corn yield comes in near the USDA forecast of 166 bushels per acre, a crop size of 13.695 billion bushels implies harvested acreage for corn at 82.5 million acres.  Projections of planted acreage sit 8.1 million acres above harvested acreage at present.  The forecast for corn planted acreage in 2019 totals 90.6 million acres under the assumptions mentioned above.  An acreage total at that level seems well above planted acreage despite the June acreage report indicating 91.7 million acres.  If one assumes a 168 bushel per acre yield, planted acreage comes in at 89.6 million acres.

Clarity on acreage totals this year may come from the August 12 crop production report.  Many market analysts expect 3 to 6 million fewer acres than reported in the June acreage survey.  If the loss of acres materializes, corn prices should find some support.  An acreage estimate near the June Acreage report total points toward continued weakness into the fall.

YouTube Video

Discussion and graphs associated with this article available here: https://youtu.be/7_8V3Y9rwlc

Source: Todd Hubbs, Farmdocdaily

Trade War Escalates-China Halts Purchases of U.S. Farm Products

The U.S., China trade war escalated this week as news articles reported that China has halted its purchases of U.S. agricultural products.

Background

On Thursday, President Trump announced additional tariffs on Chinese imports.

And on Friday, Bloomberg writer Ryan Haar reported that, “White House economic adviser Larry Kudlow played down the impact on U.S. consumers of additional tariffs on Chinese imports and suggested Beijing could strengthen the case for avoiding them being applied next month if they bought U.S. agricultural products.

Bloomberg TV

@BloombergTV

Larry Kudlow suggests China could strengthen the case for avoiding new tariffs next month if it bought U.S. agricultural products https://bloom.bg/2Tb98TT 

Embedded video

11:47 AM – Aug 2, 2019

“‘From our talks internally, that would be a plus,’ Kudlow said Friday in an interview on Bloomberg television. ‘That would be a very good plus if they start buying agricultural products in size. It would certainly help the story.’”

China Halts Purchases of U.S. Farm Products

However, Reuters writer Koh Gui Qing reported this week that,

China has halted its purchases of U.S. agricultural products and will not rule out levying import tariffs on American farm imports purchased after Aug. 3, the Chinese Commerce Ministry said early on Tuesday.

“The moves by China represent the latest escalation in its trade row with the United States that has unnerved global markets and investors.

“‘Related Chinese companies have suspended purchases of U.S. agricultural products,’ China’s Ministry of Commerce said in an online statement posted shortly after midnight in Beijing on Tuesday.”

Farm Policy@FarmPolicy

U.S. #agricultural #trade, https://bit.ly/2KN8xmx  @USDA_ERS

* For calendar year 2019, U.S. barely running a trade surplus; slim surplus for June as well.

View image on Twitter

2:12 PM – Aug 2, 2019

And Financial Times writers Yuan Yang, Archie Zhang and Emiko Terazono reported on Monday that, “Beijing has asked its state-owned enterprises to halt US agricultural goods purchases in a fresh blow to US farmers and traders after President Donald Trump further ramped up tariffs on Chinese imports.”

U.S. agricultural exports, year-to-date and current months- Volumes. USDA- Economic Research Service (August 5, 2019, bit.ly/2KN8xmx)

The FT article explained that, “Before the trade war began, China was the largest importer of US soyabeans, buying 25m-30m tonnes a year. However shipments have plummeted: since the start of the crop year in September it has agreed to buy only 14m tonnes, of which 10m has been shipped, according to official US data. The US delivered just 5.3m tonnes of soyabeans to China in the first five months of this year, against 15.2m tonnes in the first five months of 2018.

“The Chinese ministry of commerce said last week that since July 19, some Chinese companies — including state-owned enterprises — were in the process of making ‘new purchases’ of US soyabeans, cotton, pork and sorghum, and that some deals had already been reached.

Farm Policy@FarmPolicy

Top 10 U.S. #export markets for #soybeans, by volume https://bit.ly/2KN8xmx  @USDA_ERS

View image on Twitter

2:01 PM – Aug 5, 2019 

But now, China’s state-owned companies had ‘received an order’ to halt purchases, said two people who knew of the order. State-run Xinhua news agency reported that Chinese companies had suspended purchases of US farm products as a retaliatory measure.”

Hu Xijin 胡锡进

@HuXijin_GT Based on what I know, in view of new tariff threat by the US side, the Chinese side has decided to suspend tariff exemption for US farms goods and Chinese enterprises have halted buying US farm products. The Chinese side won’t submit to the US. 

10:55 AM – Aug 5, 2019

Also Monday, Bloomberg writer Mike Dorning reported that, “Major American farm groups sounded an alarm Monday after China halted U.S. agriculture imports, signaling a key Republican political constituency is losing patience with President Donald Trump’s escalating trade war.

“Zippy Duvall, president of the the American Farm Bureau Federation, the nation’s largest and most influential general farm organization, called China’s import cut-off ‘a body blow to thousands of farmers and ranchers who are already struggling to get by.’”

The Bloomberg article added that, “The administration tried to blunt the trade war’s financial toll on farmers with $12 billion in trade aid last year and another $16 billion in trade assistance this year.”

Source: Keith Good, Farm Policy News

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