Farmers Face Bleak Future Due To Trade War, Weak Commodities And Labor Shortages

By Lynda Bryant Work


 

“Farming is a profession of hope.” Brian Brett

 

Farmers live on hope from year to year, but it doesn’t pay the bills. And money is getting scarce.

Despite claims from the White House that the economy is doing great, many Farm Belt states would disagree.

The U.S. farm economy is challenged this year like at no other time in recent history, due to trade concerns, depressed commodity prices and a lack of immigrant labor.

Farm Belt states are great for business. Iowa, Illinois and Indiana, along with Nebraska, Kansas, Minnesota, Missouri, California, Texas and others, are powerhouse food producers who often harvest enough for U.S. markets and roughly 20% for export.

But farming is never a sure thing and has been challenged like no other time in recent history.

While some would claim the problem is modern agriculture’s amazing productivity in the U.S. and other developed nations and recent bumper crops resulting in excess demand, the world population is growing and needs higher production.

But here it is in 2019 – farm prices are down, bankruptcies are up, farm equipment getting more expensive and export markets fading away.graph showing dramatic decline in U.S. farm income.

What is to like about Trump’s trade war, and its destructive effects on the agricultural sector of the country?

Add to this extreme weather this spring producing massive flooding and delayed planting, which will mean lower yields this fall. While it might raise commodity prices, in the short term it creates a double hit – or less to sell at lower prices creating drastically reduced income.

Which states are hurt most depends on variables particular to an area?

California is impacted most by lack of labor, while Wisconsin suffers worst from bankruptcies and dairy losses. As the largest soybeans-producing states, Iowa and Illinois invariably are hit hardest on multiple fronts by adverse weather patterns and prolonged trade disputes. There are not enough workers to pick fruits and vegetables, or help milk cows, or keep the livestock packing plant lines running efficiently.

In Texas, a big crop hit by the tariff war was grain sorghum, a livestock feed. About 4,500 farmers grow sorghum and the price dropped by at least 25% early on. Beyond sorghum, retaliatory tariffs were levied on beef, wheat, cotton and pork – all dominant Texas agriculture products valued at approximately $18 billion.

For Texas farmers, as well as those in other states, the trade war plays havoc with their bottom line with billions of dollars of goods at stake. Texas alone imported more than $42 billion in goods to China in 2017, second only to Mexico.

With cotton the state’s 10th largest export, nearly half the U.S. cotton exported to China comes from Texas. China is also the state’s largest international soy customer. Texas exports of corn amounted to about $157 million a year, dropping precipitously in recent years.

Farmers have seen prices drop from 11% to as high as 25% and the cause early on was the mere threat of tariffs. That has been exacerbated with their enactment because shipping companies won’t buy the product. Roughly 11,000 Texas farmers signed up for the first round of tariff relief.

Roughly, 98% of U.S. farms are family owned, so it hits home. Net farm income has fallen 50% since 2013, from $140 billion to $70 billion. Working capital has decreased about 75% since 2012, from $165 billion to $38 billion. Farm debt has steadily increased about 30% since the early 1990s now more than $400 billion. Farm bankruptcies are up, as are Chapter 12 filings.

The longer the the trade war and low commodity prices continue, there will be more bankruptcies and then it will bleed into the banking sector.  According to Neel Kashkari, the Minneapolis Fed president in his five-state region, 84 farms filed for chapter 12 bankruptcy protection in the 12 months to June 2018 — more than twice the level of four years earlier.

This all comes from mounting farm debt, prompting warnings about risks to agricultural banks.

Throughout much of the Midwest, U.S. farmers are filing for chapter 12 bankruptcy protection at levels not seen for at least a decade, a Wall Street Journal review of federal data shows.map of states showing percentage of farm bankruptcies in each.

Bankruptcies in three regions covering major farm states last year rose to the highest level in at least 10 years. The Seventh Circuit Court of Appeals, which includes Illinois, Indiana and Wisconsin, had double the bankruptcies in 2018 compared with 2008.

In the Eighth Circuit, which includes states from North Dakota to Arkansas, bankruptcies swelled 96%. The 10th Circuit, which covers Kansas and other states, last year had 59% more bankruptcies than a decade earlier.

States in those circuits accounted for nearly half of all sales of U.S. farm products in 2017, according to U.S. Department of Agriculture data.

The rise in farm bankruptcies represents a reckoning for rural America, which has suffered a multi-year slump in prices for corn, soybeans and other farm commodities touched off by a world-wide glut, made worse by growing competition from agriculture powerhouses such as Russia and Brazil.

Trade disputes under the Trump administration with major buyers of U.S. farm goods, such as China and Mexico, have further roiled agricultural markets and pressured farmers’ incomes. Prices for soybeans and hogs plummeted after those countries retaliated against U.S. steel and aluminum tariffs by imposing duties on U.S. products like oilseeds and pork, slashing shipments to big buyers.

Low milk prices are driving dairy farmers into bankruptcy and out of business in a market that’s also struggling with retaliatory tariffs on U.S. cheese from Mexico and China. Tariffs on U.S. pork have helped contribute to a record buildup in U.S. meat supplies, leading to lower prices for beef and chicken.

Add to past economic woes, the ongoing trade issues and tariffs with China, Mexico, Canada and Japan, are pushing those countries to seek other trade partners. The Chinese have already made deals with Brazil and Argentina provide them with soybeans. Brazil already accounts for more than half of all soy imports in China.

Establishing these new markets caused an 85% year-on-year drop in U.S. farmers’ soy exports to China as of March 2019. As any trade policy veteran knows. the hardest market to get is the one had and then lost.

Then there is the outbreak of African Swine Fever in China’s pork where producers cut their production in half. U.S. farmers export soybeans to China as feed, but with less pork production, China will need less.

Tariffs have also driven the cost of agricultural equipment up. With the cost rising cost of equipment and the inability to sell crops, many have stopped buying new equipment.

farmer touring a field scorched by drought.
Many farmers, following bad weather and lack of markets have empty fields, enormous debt and a sense of hopelessness and the Trump tariff war continues.

While weather is beyond a farmer’s control and the related disasters, farmers also face unpredictable approval on genetically modified crops in certain foreign countries.

With all the factors going against the agricultural community, farmers are facing the perfect storm, driving many to financial disaster – even with federal aid.

Trump’s tariff war cost American consumers at least $68.8 billion last year and driving inflation and higher prices. And then there are the billions in tariff bailouts that will rest on the shoulders of the taxpayer. As farmers are well aware, bailouts never compensate them for the long-term damage.

In the past 40 years, the United States lost more than a million farmers and ranchers. Many farmers are aging. Today, only 9 percent of family farm income comes from farming, and more and more farmers are looking elsewhere for their primary source of income. They are under financial stress to produce more margins, yet they keep getting less.

Farming is a tough life. America has 2 million farmers to feed the other 330-plus million citizens. U.S. farmers provide the most abundant, safe and affordable food in the world. But everything is working against them now.          

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