Sentiment in farm country plummets as trade war looms

August 8, 2018

Producers expect to see lower income due to trade conflicts.

 

The ongoing trade war is having a lasting impact on farmers’ bottom line as well as their political leanings.

 

“This summer, we’ve seen tariffs placed on imports of U.S. ag products by China and Mexico that are impacting producers’ bottom line,” said James Mintert, principal investigator of the Purdue University/CME Group Ag Economy Barometer and director of Purdue University’s Center for Commercial Agriculture.

 

Mintert reported this month’s Ag Economy Barometer revealed that two-thirds of producers expect to see lower income because of trade conflicts, with more than 70% of them expecting a net income decline of 10% or more.

 

Three times over the last six months, the survey has asked producers if they think U.S. agriculture is at risk of a trade war that will result in a significant decrease in U.S. agricultural exports. “Not surprisingly, the percentage of producers that think a trade war is likely increased in July compared to both April and March 2018,” the report stated.

 

Producers are more concerned about prospects of an ongoing trade war now than they were earlier in the year. In July, 54% of producers said a trade war that reduces agricultural exports is likely, compared to 47% in March and 46% in April. Similarly, the percentage of producers who thought a trade war was unlikely declined to 23% in July, compared to 28% in March and 30% in April.

 

Yet, farmers remain willing to see if President Donald Trump’s trade tactics can produce an improved agricultural outlook. According to a survey conducted by Farm Futures magazine, more than 90% of Trump voters said they were willing to give him time to work out better trade deals, and 84% believe their farm will be better off under Trump in the long run despite the short-term pain caused by tariffs.

The same Farm Futures survey found that Trump’s support could be taking a hit because of the ongoing trade disputes. The survey showed that 60% of farmers would vote for Trump if a presidential election were held today. That’s down from the 75% support Trump received from growers in the 2016 election. While 24% said they would not vote for his re-election, 17% were unsure. Only 78% of those who voted for the President in 2016 said they would still vote for him today.

 

Only 8% of all growers voiced support for the President’s statement that “trade wars are good and easy to win,” with 40% believing that “Trump's actions on trade have done permanent damage to agriculture.” Only 14% said tariffs will be good for their farm’s profits, according to Farm Futures market analyst Bryce Knorr, who conducted the study.

 

Sliding commodity prices

In line with views that trade will affect farmers’ bottom line, the ag barometer also found that producer sentiment had the largest one-month decline since the monthly survey launched in October 2015.

Sharp declines were also recorded for the Index of Current Conditions, which fell from 138 to 99 points, and the Index of Future Expectations, which fell from 146 to 126 points in July. The Ag Economy barometer is based on a monthly survey of 400 agricultural producers from across the country.

 

“Commodity prices dropped sharply in June and July, and there is real concern among producers that those prices will remain low and, possibly, fall even further,” Mintert said.

 

In the July survey, approximately four out of 10 producers said they think it’s likely that December 2018 corn futures will trade below $3.25/bu. and that November 2018 soybean futures will trade below $8/bu. between mid-July and this fall. “Prices in that range would result in a significant cash flow squeeze for many farm operators,” Mintert said. “While prices at those levels would cover variable production expenses, it would leave some farmers falling far short of covering fixed and overhead expenses.”

 

The negative outlook on commodity prices spilled over into farmland values as well, with 31% of producers saying they expect lower farmland prices over the next year. Mintert said views on farmland price expectations had been on the climb, but the latest survey revealed that producers have given up some of the gains seen in the spring and summer of 2017.

 

Farmers are also less likely to make large farm investments, such as for machinery or buildings. The July survey found that 73% feel that making large farm investments is a worse decision, compared to 60% who said so in the previous month.

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