The recent announcement of $12 billion in aid for farmers affected by trade tariffs has not been welcome news for the agriculture community. A stable global economy is the best way for the agriculture industry—and South Dakota corn farmers—to prosper. Nations must work together to meet the burgeoning consumer demands of a growing population that requires increasingly more food and fuel.
Farmers have skeptically received news of the “emergency aid.” The general view is that it’s a bail out, band-aid approach that won’t work for the long term. The U.S. watched how the automotive industry sought a bail out in 2008/2009, and the industry still has not completely recovered. Many U.S. farmers do not want the agriculture industry to be seen as the next industry asking for a handout from the government. There are also many questions about the timing of receiving aid dollars and how those dollars will be allocated across our nation’s diverse agriculture industry that requires substantial capital just to continue operating.
The South Dakota Corn Growers Association (SDCGA) gathered both state and national perspectives on U.S. trade relationships, what that means for South Dakota corn farmers, and what the future holds for those relationships. We spoke with Ryan Wagner, President, South Dakota Corn Utilization Council, and Tom Sleight, President and CEO, U.S. Grains Council.
Can South Dakota Corn Farmers Outlast the Trade Issues?
For some South Dakota farmers, Trump’s emergency aid still might not come soon enough or even be enough to weather the crisis.
“Margins were tight before all this, and with a dive in prices and the long-term effects, it could very well be that guys are forced out,” says Wagner. “It’s sad to think about, and obviously, no one wants that to happen, but we do worry about losing some farmers because of this.”
Sleight acknowledges that keeping corn farmers profitable is concerning.
“Right now, cost of production prices are right at or below current corn prices,” he says. “The U.S. Grains Council has redoubled our efforts to increase demand and get those prices where farmers can at least make some profit.”
What Does the Future Hold?
The two most anticipated events of 2018 in the agriculture industry are still to come—harvest and mid-term elections. It goes without saying that the world will be watching the outcome of both events.
“The president was elected by rural America, and some of those retaliatory tariffs are on agricultural products,” Wagner states. “China can get by without the U.S. through the end of the year, but they have leverage on us when it comes to agriculture. We’d like to see something positive come out of trade negotiations and end this silly policy of tariffs and protectionist policies now.”
There could still be some rocky roads ahead for South Dakota corn farmers.
“If tensions continue and corn prices continue sliding, it’s definitely going to translate into much more vigorous and interesting debate on the Farm Bill,” notes Sleight. “There’s a lot of talk about commodity prices and inputs and prospects for the 2018 crop. The global market is responding to those price levels, and the U.S. is still in a very competitive position for corn and ethanol. But if prices continue to drop, it will create a lot of concern.”
Wagner echoes that sentiment. “If there’s continued pressure on soybean prices, it will have a residual effect of keeping a lid on corn prices,” he says. “We’re encouraging production in Brazil, and with their longer growing season, they could easily do a second crop of corn. If they overproduce corn, it will be a big problem for us. Even if we get out of the tariff situation, there will be more product on the market, driving down prices for everyone.”
Lower prices are not good news for an agriculture industry that was already feeling the pinch long before the trade issues.
“We’ve already seen what’s happened with steel tariffs, with increases in machinery and anything made from steel,” says Wagner. “The U.S. imports chemicals and some fertilizer from China, so if we completely knock out that market, it’s going to cause ripples throughout the market worldwide. Whenever you have this kind of market distorting factor in place, there are unintended consequences. We’re probably too far down the road to stop it, and we’ve done damage on the input side as well, but probably haven’t realized it yet.”
Sleight points out that things might get worse before they get better.
“We’ve heard rumblings that the U.S. might be looking at the Colombian free trade agreement, which is the third largest market for U.S. corn,” he says. “That would really be concerning. We want to make sure that we get engaged positively and promptly with Japan and finalize the South Korean free trade agreement.”
Sleight adds that there are other countries where U.S. trade could be expanding, such as Vietnam, Indonesia and the United Kingdom.
“There’s a lot of talk with Africa, as that’s the next frontier for us,” Sleight says.
Maintain Trade Relationships
With so many uncertain trade agreements, there are a few countries left that the U.S. still has positive trade relationships with. Colombia, Taiwan and Vietnam are all good trading partners, and Sleight reassures that the trade situation isn’t as dire as it seems.
“In agriculture, we still have good trade relations in general,” says Sleight. “The U.S. is seen as a good supplier. We’re still selling corn at a good clip. Ethanol will have a record-setting year with exports and last month, the U.S. had its third straight month of holding 100 percent market share in selling corn to Mexico. We have a good presence in the global markets and we don’t want to change that overnight. Agriculture is usually the first line of attack in terms of countermeasures for tariffs.”
However, Sleight notes that other countries are starting to ask questions about what the future holds when dealing with the U.S.
“We’re currently renegotiating our free trade agreement with South Korea, so there’s a little concern there,” says Wagner. “Free trade agreements are why we have great export markets, so any tinkering with those could be bad for farmers. We don’t want to give away any of those competitive advantages. We’ve strained our relationships with our trading partners right now because of renegotiating these free trade agreements.”
While Japan is still a solid trading partner, Wagner notes that withdrawing from the Trans-Pacific Partnership (TPP) cost the U.S. agriculture industry some trade opportunities. Backing out of the TPP was an opportunity for China and Japan and other nations to create other coalitions—and the U.S. lost out.” says Wagner.
“Generally speaking, we’ve lost our place as a leader in world trade negotiations,” he says. “In recent history, we’ve been the leader of organizing these types of deals. But when we’re fighting other battles, we aren’t making progress on conversations about topics like GMOs—that conversation has been sidelined. It’s a shame.”
Wagner says South Dakota corn farmers should also worry about our trade relationships closer to home—Canada and Mexico, where the U.S. enjoys a strategic advantage over other corn-producing countries.
“There is some anti-Americanism in Mexico that was evident in their recent elections,” Wagner points out. “Their new leader has anti-American leanings. I hope that we can heal those relationships, because the quicker we get back to normal relations with these countries, the better. The longer it drags on, the more resentment will build. It makes one wonder, who’s next?”
While the U.S. drags out trade discussions with its partners, other nations are moving ahead, such as the recent trade deal between the EU and Japan.
“That deal will have the biggest impact on meat products,” Sleight says. “Our colleagues in the pork industry are expecting a 30 percent decline in U.S. pork production this year, which is going to be a huge concern for corn growers, even though we’re seeing meat demand for export markets as well.”
What Can South Dakota Corn Farmers Do?
South Dakota corn farmers should not just sit idly by and wait to see what happens. Both Wagner and Sleight agree that now is the time to get involved.
“Contact your Congressional delegation and the leaders of the SDCGA,” Wagner says. “The more input from farmers, the better, because we’re a grassroots organization. Reach out by phone, email or even social media—make sure we’re heard loud and clear that this trade rhetoric, protectionist trade policies and retaliatory trade tariffs are going to cause us to lose our markets.”
With the mid-term elections coming up soon, and of course, another presidential election not too far off in 2020, Wagner encourages South Dakota corn farmers to make their views heard at the ballot box, too.
“Farmers are upset. The great thing about our government is that we can speak at the polls. If these policies have really hurt farmers by 2020, the No. 1 way to speak out is at election time. A lot could change between now and then, but we are frustrated and fed up, so vote accordingly.”
Sleight also encourages farmers to speak out—because what happens around the world does impact farmers right here in South Dakota.
“Talk to your legislators and local leaders about the importance of trade to the agriculture industry, the importance of trade to the bottom lines of all of us in the agriculture industry and the positive contributions that the agriculture industry makes, so they make sure agriculture doesn’t get caught in the shuffle when these trade skirmishes come up,” he says. “It’s important to pay attention, now more than ever. Make your voices known about the impact of these trade policies on your businesses.”
Phone interviews with Sleight and Wagner