Saturday, July 7, 2018

Trump tariffs + overproduction = bad things for Wisconsin farmers

With this week marking the start of President’s Trump’s tariffs being imposed on China and the Chinese responding with duties of their own on American goods, it seems worthwhile to look at what the trade measures are doing to our farm exports.

Bloomberg News noted yesterday that while American prices on soybeans are collapsing (as American farmers lose access to a lucrative Chinese market), Brazilians are getting a windfall as a result.
In the U.S., average cash prices fell to about $7.79 a bushel this week, the lowest in almost a decade, according to an index compiled by the Minneapolis Grain Exchange. China’s tariffs on American goods including farm products have now taken effect after the U.S. implemented a raft of duties earlier in the day Friday and President Trump threatened more action.

Meanwhile in Brazil, exporters have been handed high times. Soybeans to be loaded in August at the nation’s Paranagua port fetched $2.21 a bushel more than Chicago futures as of Friday, the widest gap since data starts in 2014. The premium has more than tripled since the end of May, according to data from Commodity 3.

"Premiums reflect the rising possibility of China being more dependent on Brazil’s soybeans," Luis Fernando Roque, an analyst at consultancy firm Safras & Mercado, said in a telephone interview from Porto Alegre…

So far, good crushing margins are helping to keep Chinese demand robust for Brazilian supplies, even with surging premiums. China bought about 1.1 million metric tons of soybeans from Brazil last week, while no purchases from the U.S. were reported, according to the China National Grain and Oils Information Center.
You'd think the natural response for American growers would be to pull back on the amount of soybeans that are produced, as the lower US price means it’s not worth it for many farmers. But that’s not what has happened in Wisconsin tin 2018.
Wisconsin farmers planted soybeans on a record number of acres this year.

The latest data from the National Agricultural Statistics Service found soybeans were planted on 2.3 million acres in the state, up 7 percent from last year's record high....

U.S. farmers planted 89.6 million acres of soybeans, just over the 89.1 million acres of corn that was planted. In Wisconsin, producers planted 3.9 million acres of corn, the same amount as last year.
So why is this going on? A UW-Madison professor tells Wisconsin Public Radio that the cheaper costs of soybeans was causing the shift…which is happening just as trade policies should make them shift the other way.
[UW Agronomy Professor Shawn] Conley said more farmers are pursuing soybeans because production costs per acre are lower than corn.

"Given the economic drivers out there in terms of the price per bushel, soybean is one of the few crops that's actually penciling out in the black or on a positive note," Conley said. "It's one of the few places farmers can make money in the state of Wisconsin in terms of a commodity crop."

But Conley and others in agriculture worry that strong price could be changing. Conley said soybean commodity prices have fallen around $1.50 per bushel in the last few weeks.
Wisconsin dairy farmers also are seeing their prices plunge as foreign markets dry up due to the tariffs, and as UW’s Menzie Chinn notes in Econbrowser, even before the tariffs hit, the US Department of Agriculture was already reporting the largest oversupply of cheese in 100 years.

And Wisconsin dairy farms are already going under at an alarming and increasing rate, as this recent article in a dairy farm trade publication notes.
The Wisconsin Department of Agriculture, Trade and Consumer Protection reports that 54 Wisconsin dairy farms sold out in June. That’s on top of the 78 that left the business in May.

Year-to-date, 338 dairy farms stopped milking cows. Still, USDA estimates that cow numbers are down just 1,000 head from January to May (the latest report available).

The year-to-day farm exits are running about 30% higher than the same January through June farm exits in 2017. Note: The June 2018 exit number of 54 farms is six fewer in June 2017.
And those aren't mega-farms going under. It's family farms that don't have the scale to get by on lower (or negative) margins.

This song keeps popping into my head in recent months, and not just because it still kicks ass. If these prices keep plunging in the coming months, how cleaned out is the average farmer going to be at harvest time?

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