The ag sector is showing signs of relief, following the pause on U.S. tariffs ordered by President Donald Trump against Canada and Mexico — though other indicators are causing concern.
If those tariffs go forward, they could significantly affect hog, corn, and beef producers, according to Illinois Farm Bureau president Brian Duncan, who noted the agriculture community remains unsettled with tariffs against China in place and the first retaliation by China announced.
"We hold our collective breaths," said Duncan. “Agriculture has worked really hard to develop the markets that we have. We certainly hope that before any tariff strategy is enacted, a full consideration of the impact on agriculture in rural America would certainly be given. We know that agriculture will be probably on the first on the list of retaliatory tariffs.”
Mexico takes about $5 billion in U.S. corn every year, and that country also is a huge customer for ham developed by the pork industry. Farmers are reliant on exports to many countries.
“As we think about meat exports, for instance, last year the exports in beef added $400 to the price of a steer, and $64 to the price of a market hog. We know about a third of our corn crop goes for export. The potential for exports of ethanol, the soybean export market is significant,” Duncan said on WGLT's Sound Ideas.
He suggested issues between the U.S. and Canada and Mexico may be more tractable than the trade war with China.
"This dispute with Mexico now seems to center more on foreign policy rather than trade policy — immigration, fentanyl and all of those issues. And [the] same with Canada. So, I would hope that export market is not at risk," said Duncan.
He said the Bloomington-based Farm Bureau had welcomed the approval, during Trump’s first term, of the U.S., Canada Mexico trade agreement, a pact he said is an example of desirable trade rules.
“The Farm Bureau believes in rules-based trade," said Duncan. "We were really encouraged when we received a positive ruling from the WTO on the Mexican GM corn dispute.”
Duncan noted the ag sector was frustrated by the Biden administration and a lack of new trade deals, adding the new administration's quick plunge into protectionist measures is disheartening.
“We kind of stood still while the rest of the world continued to work towards trade. And you know now we sure don't want to be at risk of losing what we have,” said Duncan.
China
Tariffs against China during the first Trump administration caused Chinese purchases of soybeans to move from 60% of U.S. bean sales to 20%. They recovered during the Biden administration to 50%. Duncan said there is potential for a sustained hit this time as well.
“South America has more land they can open up, particularly Brazil. China has made significant strategic investments, not only in South America, but also in Africa as they look to build out a group of trading partners from which they can source agricultural products,” said Duncan.
“If U.S. soybeans become priced higher than any other soybeans in the world because of countervailing duties or retaliatory tariffs, undoubtedly, it will cost us market share. Will that be long term? Ultimately, it probably will be, but that remains to be seen.”
He also noted China never made some of the purchases it agreed to under the Phase One deal made by the first Trump administration.
Tariff impact cushions
During the first Trump term, the administration made $27 billion in "market facilitation payments" to farmers to help make up for market share lost to the trade war with China.
Duncan said the only talk he's heard about such payments this time was to a question during confirmation hearings for new Ag Secretary Brooke Rollins. She indicated support for the idea, he said.
Farm Bill
Duncan noted farm income has declined for two years, and the expired Farm Bill extended by lawmakers uses 2018 numbers to determine backstops for farmers in the event of crisis.
“There continues to be some behind-the-scenes negotiations. I don't know how serious it is," said Duncan. "What we are messaging is get to work on a Farm Bill now. Our farmers do not want this can kicked down the road another year. We recognize it appears that the tax package will be legislative priority one for the administration, but I'm hopeful they can walk and chew gum at the same time.”
He acknowledged there will be challenges from both ends of the political spectrum. From the far right, there will be resistance to spend ... on the nutrition title [SNAP]. The far left will not like spending on the commodity title. He said the Farm Bureau is hoping for a middle path, but there will be questions about how to pay for the measure.
“So, it is setting up to be a grind, I think,” said Duncan.
USAID
If the destruction of the U.S. Agency for International Development [USAID] called for by Elon Musk and the Department of Government Efficiency continues, it will impact farmers, said Duncan.
"The USAID effort, we'll see if that sticks. That is significant, as a lot of our agricultural goods flow through that program," he said.
It’s not just food aid to developing nations, and the exercise of soft power and relationship-building through health care, Duncan acknowledged. USAID has substantially benefited farmers by funding crop research that has produced useful varieties of corn and soybeans over many decades. Some of that research happens at places like the University of Illinois.
Duncan said if that government-led research effort gets cut permanently, the business sector would take up some of it — say in corn, wheat, and soybeans — but not all.
“Some of the specialty products that don't provide the volume that the private companies maybe show the interest in. Those are still very important to see new traits developed, new strains developed. Research on some of those, if you can call them minor crops, but they're not minor if you're growing them, is what will be hard to find a home with private industry,” said Duncan.
Even some business sector ag research could be viewed as problematic for national interests.
“More and more, of course, research is in the hands of the private companies. You know, a lot of those private companies are not American-owned. If that's significant or not, I'm not sure,” said Duncan, adding the the buyout offer to federal workers also has disruptive potential for agriculture.
“What happens if we have a bunch of USDA meat inspectors take the buyout and walk off the job? I don't want to speculate, but I think my job is to try to look around the corner and anticipate what's coming for our members,” said Duncan.
How farmers should brace
Farmers are less leveraged now than they were in the 1970s and 1980s. On the flip side, commodities prices have been low for a couple years, which has caused strain. Duncan said how are they situated over the long haul depends on where individual producers are in their careers.
“If you're an established farmer with equity, you can lean back into that to help carry you through some of the economic challenges. There's some staying power. What I am concerned about are the younger farmers who may not have had ... the chance to put together that equity base to weather these kinds of storms,” said Duncan.
Even farmers who have equity as a reserve may face tough choices.
“I'm wearing a Cubs hat right now, and so my catchphrase is, ‘Wait till next year.’ But I know of some retirements that have taken place. It is a challenge for everybody. Just because you've got equity doesn't mean you enjoy burning it,” said Duncan.
That number is not large so far. As for younger farmers, Duncan said he does not want to see a repeat of the 1980s when a significant percentage of good young people exited the sector.
“I started farming full time in '83-84-85. Those were my foundational years,” said Duncan. “A lot of my peers who wanted to come back to the farm, just didn't, and we don't want that kind of hole again. I don't think we're there yet, but that's why we're working so hard for a Farm Bill.”
He also noted improvement in corn yield trends suggest further pressure on prices and a need for new markets like aviation fuel.
“We could be needing to find a home for another 5 billion bushels of corn on top of what we're growing today, and what will that look like? We're also very interested in making sure tax incentives and production guidelines for sustainable aviation fuel are doable so we can continue to grow our demand base,” said Duncan.
For now, he said farmers should tighten their belts.
“Delay capital expenditures, right? We have seen the price of used machinery come down, but delay capital expenditures. Analyze your crop inputs. If you've got good soil fertility, that's a bank account. You can lean into that a little bit. All these things ... are designed to see you through,” said Duncan.
There are some encouraging signs, he said. Corn has rallied. There is a big demand for the new crop. He hopes government yield forecasting also can improve.
“USDA hurt us because it overstated this crop for a long time, and farmers sold some products too cheap. I would like to see USDA also get its analytics in a more accurate space. But I think there's opportunity, if we can get our cost profiles back to a more reasonable standard as well,” said Duncan.
