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Comment: The road to perdition always leads south

U.S. farmers are stuck between a rock and a hard place due to Trump’s trade wars

If war is hell, then trade wars must be a purgatorial stop along the way. For proof, just look where Election Day 2018 finds American farmers.

Faced with ample production, stale commodity prices, and the lowest forecasted national farm income since 2002, U.S. farmers are now waiting for a winter of government “tariff mitigation” payments while competitors like Brazil and the European Union step into international markets — the Chinese pork trade, for one — that just a year ago favoured U.S. firms and farmers.

That’s not fake news.

Illusionary, however, are the recent trade “victories” touted by the Trump White House. Those deals — with Canada, Mexico, and South Korea — when examined closely by ag trade experts instead of hopeful, Trump-supporting farm groups, hold few, if any, positive changes.

Those extraordinary Canadian dairy concessions touted by the administration in NAFTA 2.0? “Canada’s scorned ‘Class 7’ price for non-fat milk solids, used to lowball U.S. exports of dairy protein powders,” noted The Milkweed’s October issue, “has been barely neutered.”

And, it adds, “Mexico’s 25 per cent tariff on U.S. cheese imports” remains.

The picture doesn’t get any rosier when examining soybeans, the other critical U.S. export in tariff limbo. Recent U.S. Department of Agriculture (USDA) estimates show that 2018-19 ending soy stocks continue to grow. At mid-harvest, carry-over stocks were estimated to be 885 million bu., or a whopping 19 per cent of production.

That means that nearly one out of five bushels of American soybeans grown this year will still be in storage when next year’s harvest begins.

Worse, while we sit on our growing hill of tariff-dinged beans, South American farmers are greasing planters to leap into the gaping hole we opened for them. USDA reckons 2019 South American soy plantings will balloon more than 10 per cent to boost overall production to seven billion bu., or nearly 50 per cent more than America’s 4.7-billion-bu. 2018 crop.

The Trump administration truly believes this mess is a result of “unfair retaliatory tariffs” by China when, in fact, China didn’t start this battle; the White House did. Economic claptrap about trade deficits and nonsense reviews about “the worst trade deals ever” might be fine for populist political campaigns but they’re pure poison for on-the-ground governing.

Two years in, however, the claptrap continues.

The White House now wants farmers and ranchers to forget about the current trade debacle it created and instead focus on forthcoming trade talks with Japan, the European Union, and China. OK, but no dates for even one initial meeting — let alone timetables for definitive, detailed negotiations — have been set with any of these now-wary “partners.” As such, any new deal with anyone is likely years away.

But waiting isn’t an option for most farmers because signs of where today’s farm and trade policy are taking American agriculture are beginning to appear and most point south. Dead south, in fact.

On Oct. 19, the Federal Reserve Bank of Kansas City reported that “non-real estate farm loans” — that’s bank-speak for borrowed, day-to-day operating money — is now “30 per cent higher than a year ago,” according to the National Survey of Terms of Lending to Farmers.

“This sharp growth in farm lending followed steady increases earlier in 2018,” notes the Kansas City Fed, “and represents the largest annual percentage increase in the third quarter since 2002.”

The report goes on to note two other prescient facts. First, the farmers taking out the loans are big operators: “(L)oans exceeding $1 million was a primary contributor to the increase… ” and, despite the rise in lending, “… performance of agricultural banks across the country generally has remained solid.”

The first point isn’t good. If big-acreage farmers are already borrowing money at historic levels to stay afloat at this year’s prices, lower prices next year could be historically calamitous.

The second point is only marginally — and, most likely, just temporarily — better because of, well, the first point.

Meanwhile, Congress is as busy as a farm dog chasing its tail; it’s running in circles to pass a Farm Bill that holds nothing to address the storm brewing on the horizon.

The Farm and Food File is published weekly throughout the U.S. and Canada.

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