US farmers shouldn’t panic – yet – about threat of Trump trade wars

US farmers shouldn’t panic – yet – about the threat to their crop exports posed by President Donald Trump’s trade agenda.

Mr Trump’s broadside to Mexico, a huge buyer of US agricultural shipments, during his first few days of office has provoked considerable alarm over the potential for retaliation.

Broker CHS Hedging, for instance, warned that a “material slowdown in US exports [to Mexico] could be catastrophic”

The direction of Mr Trump’s early travel in office has also lent support to ideas that he will realise pre-election pledges for a crackdown on trade with China, another big buyer of agricultural commodities, many from the US.

But there are two reasons for calm among US farmers – for now.

Bark vs bite

The first is that the trade wars which might appear to be on the horizon never materialise.

Mexico’s rank in imports of selected US ag export products

Biggest importer: corn, pork, rice, soymeal

Second-biggest importer: sorghum, soybeans, soyoil, sunflowerseed oil, wheat

Data: so far in 2016-17. Source: USDA

Mr Trump’s bark may well prove worse than his bite – he has already watered down Friday’s anti-immigration order aimed at seven predominantly Muslim countries. And even he does not temper his policy, the rest of the US legislature might.

The second is that even if Washington does get into trade battles, it is nowhere near certain that the likes of China and Mexico would respond with punitive bars on agricultural imports from the US.

In both countries, food prices are a particularly warm political hot potato, which may make Mexico – the top importer of US corn, pork, soymeal and wheat – and China, the world’s biggest buyer of crops including soybeans, reluctant to bring agriculture into the front line of battle.

Sure, Beijing has already slapped big import tariffs on imports of US distillers’ grains (DDGs), a corn-derived feed ingredient, often used as an alternative to soymeal. But that is one ag product China can do without, given its huge domestic corn stocks, and mammoth soy processing industry.

Revolving door

Furthermore, even if Beijing and Mexico City were to introduce big hurdles on imports of US agricultural products, that may not be as big a disaster for US farmers as it first appears.

For China and Mexico to source crops from origins other than the US would displace other importers – which may well resort to the US for at least some of their needs.

To some extent at least, what the US lost in trade with the two importers in question it would gain back from other buyers.

Reputational damage?

But that does not mean that the US should hope to escape unscathed from belligerence in trade – just that the damage may be more slow burn than quick hit.

China’s rank in imports of selected US ag export products

Biggest importer: cattle hides, linseed oil, sorghum, soybeans, soyoil

Second-biggest importer: cotton

Data: so far in 2016-17. Source: USDA

Gaining a reputation as an impulsive and capricious partner would be a big turn-off, difficult to reverse, for importers, many of whom favour reliability far above price in their agricultural commodity origin. For a livestock farmer, for instance, a broken grain supply contract may mean no feed.

Furthermore, in disrupting ag trade, the US would be unleashing forces over which it has little control, and which could prove highly detrimental long-term.

Recall the sugar beet industry – whose development was prompted by Napoleon in the face of UK blockades against supplies of cane sugar to his empire – stands as a reminder of the lasting and unpredictable impact of trade battles.

The need for China to find alternative soybean supplies, or Mexico to find new corn sources, could drive export trade to US rivals, custom which might never find its way back to the US.

Russia’s potential

Already world corn production, for instance, is broadening its geography, with new seed varieties expanding the crop’s growing range to the likes of Russia – for which 2016-17 looks like having set another harvest record.

And Russia has already shown, in wheat, what it is capable of in grain trading – turning from a net importer at the start of this century to the world’s top exporter now.

Mr Trump might want to think carefully before giving Moscow another reason to cheer his appointment.

Agrimoney.com will later this week publish a free-to-download analysis report on Sonny Perdue, who Mr Trump has appointed US agriculture secretary.

 

Source

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