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Trump 2020 or Trump $2.02 corn?

September 19, 2019
By David Kruse - Columnist , Farm News

What are you going to plant next year...that is profitable? Trump's trade war has destroyed the soybean and cotton markets. Wheat is no better. Those that planted soybeans this year out of a desire to maintain crop rotations will be maintaining the burdensome carryover at considerable expense and if they continue to plant soybeans in 2020 the carryover will get worse. We are digging the holes of unprofitability deeper in all crop markets. That will continue until the trade war with China is settled and beyond. Chinese demand has shrunk while South America is essentially doubling up global soybean production.

You hear farmers that support Trump's trade war with China saying that it had to be done, claiming that it will have been worth it for agriculture as trade will be better after trade wars are won. That is pure BS. It is not gonna work out that way. We will now have two global supply chains that have grown up for the purpose of producing soybeans for the same market...China. A resolution of the trade war will still leave supply and demand way out of whack. Two supply chains producing for the same market will create a glut of supply that will break some farmers before it gets better.

There is a reason why they increased the cap on Chapter 12 bankruptcies to $10 million. Somebody thought they would pop the cap. Those that think that Trump has some creative way around this disaster are being fooled. Our soybeans, when blocked from the Chinese market, have essentially become a global soybean reserve. If we keep producing soybeans without a market, that reserve would become gargantuan. We will think that $8 soybeans are a good price and be dependent on Trump for subsidies to stay solvent. This year there were profit opportunities in wheat, corn and cotton that have faded as farmers took advantage of them. Right now, there is only corn and that market will eventually be drug down as well when the survivors of other crops all try to get on the last lifeboat. If everyone grows corn that one will sink and drown too. MFP payments will not save farmers.

If in a trade war, which is putting a ton of bricks on grain/soy balance sheets, one would have thought that a good manager would not have harmed the domestic balance sheet as well. Then Trump approved 31 RIN Waivers. The EPA is dominated by petroleum industry shrills and Donald went along with them lying to farmers over his support of ethanol. It should have been Ag Secretary Sonny Purdue's job to whisper in the president's ear that given the duress that the ag sector is under from trade war repercussions that he should not harm the RFS too. That didn't happen, so we can say that Purdue is ineffective at best and a phony at worst. Trump didn't get the message until Ambassador Branstad spent time in Iowa and then got back to Washington.

Trump appears to get it when intermittently he realizes that he has gone too far with his trade war and is hurting his political base in agriculture. When the trade war was going badly, that is when he suddenly dropped the metals tariffs on Canada and Mexico that was blocking finishing the USMCA. This time when things went hard south in the trade war with China, he pulled a trade framework with Japan out of his behind in order to soften the despair at continuing a long trade war with China. He needs something to show for his ridiculous statements like "trade wars are easy to win." The deal with Japan should happen but may not be without further consternation either if he thinks he can extract something else from Abe. I don't think that ag will come out better than what we could have had with TPP. The deal with Japan will give meat markets some help but is not big enough to fix grain/soy balance sheets.

The ag financial statement is going to continue to erode into next year. There are farmers who are well off in terms of net worth who will have a problem getting an operating loan extended for 2020. They have not made any money for 3-4 years and they will not be able to project a profit for 2020 either. By the way, someone told me that "Trump in 2020" is being abbreviated to "Trump 2.02 Corn."

The bankers want borrowers to be able to repay notes and there is no profit in crop production to do so. If things are not drastically reversed, farm net worth will have the greatest decline under Trump since Herbert Hoover.

Trump ag policy is destroying supply/demand balance sheets and raining some cash from the Treasury on farmers to buy their votes won't fix the basic unprofitability of farming. After he gets the farmers votes in November 2020, Trump will have gotten what he wanted from farmers, quickly lose interest in the ag sector and we will be left in the hole with burdensome balance sheets to fend for ourselves. That is how he functions: transactional, and short term. He is making South American Ag Great, ceding China's market and Brazil's 30 percent currency advantage to them.

Trump even supports Bolsonaro on burning the Amazon because he doesn't have a clue that means more soybeans in a few years there. But global commodity competitors too will eventually get drug into what will be a global commodity market supply glut. This thing is like turds swirling around the toilet bowl and farmers are thinking that Trump is the rotor rooter man that will be their hero keeping them from being flushed into the septic tank. It is his hand on the lever.

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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