Source: Gary Brock videoAgriculture economist Matt Roberts - formerly with Ohio State University Extension - talks to Ohio farmers March 13 in Washington D.C. about what they should be “terrified of.” And it’s not the weather this summer.
By Gary Brock
WASHINGTON D.C. — What should terrify farmers today? Agriculture economist Matt Roberts knows the answer and it is just one word — tariffs.
This was his word of caution to more than 70 Ohio farmers March 13 in Washington D.C. during the 71st Ohio Farm Bureau Presidents’ Trip to Washington D.C.
Roberts gave farmers a mostly optimistic outlook about Ohio and national agriculture in coming years, saying that the ag economy should rebound within three to five years. But the big worry is the future of exports.
“We are the world’s largest or second largest world exporter. But the progress made in exports, all of that can be wiped out with a single ill-conceived tariff being raised or trade war being tipped off whether with Mexico or China or any of another half a dozen countries,” Roberts warned.
“What is difficult in agriculture, especially commodity agriculture is a large percentage of our production is exported. We look at soybeans — nearly half are exported; corn … nearly a quarter is exported; cotton is three-quarter exported; a lot of our meat is exported. Anything that can impede that, we are going to see the affect of it,” Roberts said.
Roberts said that if a trade war breaks out, we will see tariffs. “That is normal. We talk about a trade war, it is not normally an oil embargo or a grain embargo. It is normally a 10 percent tariff, or it is a 15 percent tariff. The problem with this is that most of these products, we are competing in a world market to supply them. So if there is a 10 percent embargo imposed against us and not against Brazil, that means we have got to meet that price to get China’s business,” he pointed out.
“I think that should be terrifying to the agriculture community.”
He said that for the first time, “I see us in agriculture at serious political risk. I see us with significant trade impediments. I am not a trade specialist, but you don’t have to be to understand a trade war. When these trade wars break out, countries target sensitive crops to retaliate against.
“To me, soybeans make a very attractive target. The thought is China can’t stop buying soybeans, but they don’t need to … they can place a tariff on them and then we are competing against Brazilian soybeans. We would have an additional tax that they don’t. History shows that for the first few years producers would eat that additional tax,” he said.
“I hope cooler heads will prevail, but this is where we are at. These are public negotiating tactics. Hopefully that is all we are seeing.”
Roberts said here is a lot of risk here. This is a hard risk to manage, he pointed out. “That is why I think crop insurance is the best way to manage that risk, the wisest way. Even if it is not an actual tariff going on or rumors or fears going on, that could cause prices to fall – that is the best way to manage it.”
Until December Roberts was a professor of agriculture economics at Ohio State University and was a familiar face to Ohio farmers attending seminars and conferences where Roberts spoke on issues such as grain prices and trade. After leaving OSU, formed his own Ohio-based company called Kernmantle Group.
Lower profits – for now
Roberts told the farmers that for the time being, there will be lower profits across almost every parts of agriculture. “Bank lending is dramatically lower, the biggest drop in almost 20 years. But don’t read too much into that. It doesn’t mean banks have stopped lending. It is a reflection the fact that there is more risk out there. They are waiting. I am looking for the first quarter of 2017 to be better than last quarter.”
He said, “We are in a 3-5 year stretch in lower grain profits. It might be two-three years to catch up with the surplus over the last eight years. It might be longer.
He added the grain profits are going to remain low. It is going to continue to be a tough business, he predicted. There is profitability in cattle and hogs, however. Overall net farm income has dropped from $135 million to $95 million, a big drop over the last five years across almost all sectors, he said. “We are seeing this agriculture-wide.”
But there is good news. “There has been an astounding decline in extreme poverty around the world, and an explosion in wealth around the world, and that is driving the exports. Wealth has driven the demand,” Roberts said.
Roberts said the vast majority of farms across all sectors are actually in decent shape. “You are all doing OK, right? he asked the Ohio farmers.
He said they are seeing farm bankruptcies, but they are farms that overall were expanding rapidly, high cash rents and high standard of living. “Most farms manage conservatively, so most are in good shape. But we are going to struggle and it will be tough the next few years,” he warned.
Good news with new administration
“The good news is that this is when good farmers separate themselves. In 2012-2013, these were years it was relatively easy to be profitable. The goal of a farmer is to be able to pass their farm on. You don’t see that with other businesses . The good news is that in the next few years, that is when legacies are built. This will be a time of opportunity. The best way I can summarize it is that Trump has awakened America’s animal spirits,” Roberts said.
In the last few months, economics attitudes have changed, he pointed out. “Indications are that people in the economy are happy about things. Job opening and labor turnover survey is good indicator. One is how many people each month have quit their jobs. This is an indicator of people’s faith in the economy that they are quitting their jobs. To me this is an indication that things are getting better.”
But there are worries
“For those of us in this room, the biggest worry is trade. Trade matters to us because we do sell around the world. Half of our soybeans sell around the world. Foreign policy relates to trade policy. There is nothing better for us than a peaceful world,” said Roberts. “If you want to build a wall and keep people from coming out of Mexico the best way is to make Mexico really, really rich.”
He said corn prices are stronger than expected. Strength in ethanol demands. Bean demand strong, because of sales to China.
He said this year’s 2017 trade outlook is:
– $130 billion in agriculture exports in 2016 – the USDA predicts $136 billion this year;
– $113 billion in ag imports in 2016; USDA forecasts $114.5 billion in 2017;
– 174.6 corn yield average 2016-17, but 166.5 for 2017-18.
Roberts said he sees in the future declining corn acreage as demand for soybeans increases. “There is a desire to keep those per acre profits competitive.” Regarding soybean production, he said that in 2001, “We heard a lot about Argentina and Brazil and that eventually our soybean industry would go away. So 15 years later … we’ve gone from seven billion to 12.5 billion bushels. There is a 75 percent increase in global consumption. Soybeans were $4.35 a bushel in 2001 — that’s soybeans not corn — and prices have more than doubled. That is incredible demand.”
He said another positive is the increase in soybeans in biodiesel production. “These increases were totally unexpected some years ago. There is going to be a growth in domestic demands,” he said.
“Every year we have been saying that we will be swimming in soybeans, but every year about this time it just goes down. I can’t tell you why, but the surplus will go down,” he said. And what will soybean yield be this year? He said 45.9 is “what I am seeing. This is lower than a lot of people. I think we are in good shape because China will keep buying.”
Buying, that is, unless trade tariffs are imposed. Then Roberts says American soybeans will be the target of retaliation.
Gary Brock can be reached at 937-556-5759 or on Twitter at GBrock4.