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The trump wave: Duck and cover
March 17, 2016 - David Kruse
This is the third of a three-part series.
My wife and I traveled to Africa for our 40th anniversary on a National Geographic tour and spent time with others on the tour that lived on both East and West Coasts. They were nice people, but completely ignorant of anything about the heartland, lacking even a superficial understanding of the food system or issues that concern us. Donald Trump is one of them, he is much like them and doesn’t have the range of knowledge to understand the scope or implications that his trade and immigration policies would have on the ag sector. I really doubt that it would change his opinion if he did. I don’t think we register on his radar. I don’t think he is being advised by people who understand this and even if they exist have no incentive to challenge him internally. I have heard multiple Trump supporters who know better, justify their support saying things like, “Oh, he won’t actually do what he threatens,” or “He is just setting up the deal,” “He is a businessman so he will figure it out,” or “Congress will stop him.” Good luck with those delusions. I think Donald will build “the Wall” and force Mexico to pay for it, or he will be a one-term president. The whole concept of the general appeal that the voting public has for Trump is that Obama has been a disappointment, Republicans over-promised and the next president will have to do what he says or the wheels will really fly off this country. Donald will have to win or else. That is where the irony seeps in over how voters will elect Donald because Obama and Republicans both failed to do what they say — while professing to believe that Donald will not actually follow through on policies he has promised. Explain that logic to me. The markets are going to roil at some point in time. Gold would now be cheap. The ag sector is going to take the brunt of it. As important as this is, it has amazed me how quiet and uninvolved that the ag sector was in addressing these issues with presidential candidates. They will come to regret that. The ag sector has to be smarter and faster about responding to these things than it is. Market volatility seen now is likely to be looked upon as peace and quiet compared to what is coming. Immigration and trade sentiment is against us and while the ag sector has not effectively made its case in the debate over these policies it may never get a chance to. While livestock industries have no defense against a trade war in which they are targeted, looking at the larger picture they will have to significantly invest in a new level of automation, robotics where applicable to do tasks now done by humans. It will be costly, but if the Mexican laborers are deported, machines will have to milk more cows. Automation, not Americans, will replace immigrant workers. A 61 percent increase in milk prices as forecast and lower feed costs will help dairies afford automation. Mid-size dairies, not small enough to avoid a need for hired labor, but not large enough to afford the capital investment, are stuck in the bullseye. I don’t know how you can get a robot to ride feedlot pens or farrow sows or load chickens and turkeys on trucks, but lost immigrant labor will be replaced with automation at every opportunity out of necessity. Food costs will go up. The soybean industry benefits from having such a fantastic customer as China, but with so many eggs in one basket the loss of that customer would be catastrophic. The U.S. soybean industry has key customer risk. Donald plans to pop our best soybean customer right in the nose calling him a thief. It takes the next 15 U.S. soybean export buyers to come close to equaling what China purchases and Japan was one of those. Japan would be made into an enemy as well in a trade war so would look for alternative supplies of foodstuffs from others, too. We will plant about 82.5 million acres of soybeans this year. What are we going to do with 20 to 30 million acres if China sharply reduces U.S. soybean purchases? Those acres will shift to South America. We export 12 percent of our corn production directly, but a lot more indirectly as meat and DDGs. That is at least 11 million acres of corn planted here for which there would be no market. We can go down the line with sorghum, wheat, DDGs and it is the same thing. Carryovers would soar and bins would burst. Farm payments would be defaulted. The Federal Reserve will have to submit farm banks and the Farm Credit System to new stress tests to see if their loan portfolios can stand a trade war. Farmland values, of course, could not stand this pressure. Donald says that he wants to buy a farm and he may create a historical buying opportunity to do so. The ethanol industry is building on exports to China. That would go down the tubes, too. There would be a ridiculous domestic supply of soybeans, but would the curtailed crush due to a glut of soymeal support soyoil at prices that the biodiesel industry could afford? There are so many interrelated market factors that would turn the ag sector economy inside out. South America agriculture would gain a windfall of investment and strategic food commitments from trade partners that Trump would turn into our trade enemies. I know, you think this is all absolutely insane, but Donald keeps talking, telling exactly what he intends to do and no one in the ag sector appears to have thought it through beyond an inch deep. This series was not meant to tell you who to vote for as it may not make any difference for the primaries any longer. It is meant to open some eyes to the ramifications of the kind of risks that we are going to have to manage. At some point the ag sector will say, “Why didn’t we see this train wreck coming?” As you have read this column, be sure to tell them that someone did. This three week series is available in one entire column at: www.commstock.com to view it.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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