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Trump created ag sector crisis:

It is now time he fixes it

May 28, 2019
By David Kruse - Columnist , Farm News

DJT (Donald J. Trump) does not want inflation or higher commodity prices. Those things bother the Fed and cause them to tighten monetary policy, increasing interest rates and we know how he feels about that. He has been doing a very good job of holding commodity prices down as every time the price of oil recovers, he jawbones it back lower again. The rise of the shale oil industry and fracking has given him leverage in the global energy markets that no recent president has ever had. We can take care of our energy needs if we want or have to. This was not due to anything he has done but is fortuitous timing for him policy-wise and politically.

Donald is the luckiest president that we have ever had. He has been a master of deception over the RFS. He claims to support the RFS while undermining it at the same time. The balance of benefit has gone heavily to Big Oil in RFS policy. Cheap RINs were the dream of petroleum refiners allowing them to opt out of blending ethanol and DJT delivered that to them. Ted Cruz is their hero. He has many in the trade excited over pending approval of E-15 yet when the RIN market shakes out from the proposed "reforms" even the E-10 standard will be at risk.

Coca-Cola doesn't want to sell Pepsi just like petroleum producers do not want to sell ethanol. The price of RFS RINs had made it financially preferable for them to blend ethanol until now when they can be purchased to fulfill their RFS obligation for just pennies on the gallon. When petroleum prices have gone up, ethanol prices have instead diverged continuing to grovel, scraping bottom failing to participate when pump prices have gone higher due to impaired blending incentive. Ethanol has served to lower pump prices as a very low-cost comparative octane additive. While market forces signal use of more ethanol, the petroleum industry is not responding. Consumers lose. Ethanol plants lose. Farmers lose as USDA reduces the size of the ethanol crush. That increases the corn carryover and puts pressure on corn prices.

Net farm income has fallen by over half from pre-Trump levels and while that is financial pressure on the 2 percent of the U.S. population that produces food, fiber and fuel, the other 98 percent are who Trump is referring to when he says that the U.S. economy is the best ever as it gives them cheap food. Farmers think they have a seat at the table when they are actually on the menu.

Annualized, adjusted net farm earnings fell $11.8 bln in the first quarter of 2019 even as U.S. GDP grew 3.2 percent. The ag economy has detached from the general economy, technically in a recession while the rest of the country is doing well. The Ag economy has not stabilized and continues to deteriorate. The safety net in the farm bill may be called on for help but here, to the Trump administration budgeted for a reduction in the subsidy for crop insurance, a key component of risk management, from 62 percent to 48 percent. Farmers are contributing to the bounty that the 98 percent are enjoying as their equity drains. US farmers did get a check from Trump for damage done to markets by his tariffs but the damage is extending so that they need a much larger one to come close to being made whole.

DJT undermined corn demand with his RFS policy and ruined the soybean market with his tariffs so it will have to be an astounding deal done with China to fix it. Rabobank thinks that Chinese soybean imports could fall as low as 80 mmts this year due to ASF, leaving both South America and the U.S. awash in soybeans. China may commit to buying a lot of soybeans in a trade deal but the terms will be important. I expect they will be backloaded commitments as they don't need them right now. They have too many dead hogs. South America is producing 35 mmts more corn this harvest than last which is cheaper than ours in their currency. There is a bonafide crisis in the US dairy industry where literally thousands of dairy farms, that have been around for generations, will remember who was president when they were forced to Chapter 12.

Trump's steel/aluminum tariffs are killing the ag sector. IA Senator Chuck Grassley wrote an OP-ED in the WSJ that essentially said that there will be no USMCA as long as these tariffs are in effect. Both Mexico and Canada have retaliatory tariffs on U.S. Ag products. Trump promised to end the steel/aluminum tariffs on Canada and Mexico with the initial signing and then didn't. Trump could have had the U.S. join TPP which would have been a boost for U.S. ag but the opposite is happening as the other TPP partners stuck together. Now Canada, New Zealand and Australia are gaining market share at our expense in Japan and other Pacific Rim member countries. This will get worse as TPP-11 tariffs decline further while ours do not.

He is using commodity producers, giving them the promise that he will cut trade deals that not only recover losses but reward farmers for sticking with his policies. That is getting harder and harder for them to believe as instead of digging out, the ag economy is sinking further down. Farmland prices and farm solvency is getting pulled closer to the tipping point. For some it will soon make no difference as they will be joining the general workforce as truck drivers or the retirement rolls, drawing on entitlements that Trump has made no effort to reform as making a living farming has gotten too hard under Trump farm sector policies. His fixes are not fixes.

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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