By ANN HINCH
INDIANAPOLIS, Ind. — Current corn and soybean profitability may not pull ahead of their 2016 income levels for midwest farmers, but Dr. Bob Young believes the nation’s overall agricultural economy will improve for 2017.
“I think you can make a case that we hit the bottom in 2016,” the American Farm Bureau Federation’s chief economist told producers at the Indiana Farm Bureau Agriculture Policy Outlook in late June. Young is also AFBF’s deputy executive director of Public Policy.
Indeed, he said ag analyst firm PRX has forecast major crop commodities corn and soybean prices as likely holding steady and down 25 cents per bushel, respectively, for the 2017-18 season. But it projects wheat will be up 35 cents. Young said prices are also likely to be higher in 2017 for products like cotton, vegetables and meat – for instance, right now the United States has its lowest cold-storage inventory of bacon since the 1970s.
Most of the drivers for better overall ag economy are coming from the livestock sector, he said. Input costs are down, though labor, fuel and interest rates are up from 2016. As for total U.S. net farm income, however, the USDA has projected it will stay relatively flat through 2025,jockeying in the $60 billion-$70 billion range – which is around the level it was in 2009 before the ag “boom” that roughly doubled it to a record high by 2013.
One basis for his overall hopeful outlook, Young said, is “we are slowly working down Chinese stocks.” China’s government is drawing down on agricultural stocks right now – when that stops, he explained the country will look to the world to buy more. This is one reason current U.S. trade policy “keeps me awake at night,” he said, noting the trade situation is different than it was 30 years ago. In agriculture, producers have brought online 200 million more acres of land around the world, which is equivalent to a little more than U.S. area planted to corn and soybeans.
If the United States starts imposing trade tariffs, Young worries the ag sector will be most exposed to retaliatory duties. “The biggest challenge you have relative to agriculture is, don’t screw something up” in trying to undo or redo trade pacts, he said.
Since taking office almost six months ago, President Donald Trump has pulled out of the pending Transpacific Partnership (TPP), announced intent to renegotiate terms of the 1994 North American Free Trade Agreement (NAFTA) and begun reversing Obama-era actions to open up trade with Cuba.
With respect to NAFTA, Young said while rhetoric focuses on trade with Mexico and its role in our economy, the United States probably has more issues with Canadian trade. Recent talks and a deal with the Mexican government over sugar (see related article this week) show that country seems willing to negotiate – perhaps more than the United States.
While some Mexican officials have talked about buying corn from South American countries, which would deprive U.S. growers of some sales to their biggest export customer, Young said the reality is that making such a change would take time and effort – and probably construction.
“I think at this stage of the game, our transportation capacity (to Mexico) is going to keep us in the game,” he said, adding AFBF and the U.S. Grains Council are working on reminding Mexico of the U.S.’ positive ag sales customer service.
Trump has said he would consider negotiating individual trade pacts with nations of interest involved in the TPP. The problem, Young said, is those nations may not be as receptive. For example, Japan has said it will not engage in ag trade talks with the United States outside the TPP.
Europe trade moves
One effort that hasn’t had as much press this year is the Transatlantic Trade and Investment Partnership, or TTIP. The United States began negotiations with the European Union in 2013 but since then, Young said some factors in play have changed, between the United Kingdom voting to leave the EU last year (commonly called “Brexit”) and Trump’s election partly as a result of his stance on trade.
In late May, Reuters reported that TTIP “looks a distant prospect,” though the EU and U.S. did meet and agreed “to seek to increase trade cooperation,” said to a senior EU official. European Commission President Jean-Claude Juncker said delegations from Trump’s administration and the Commission would meet in “the coming weeks and months.”
“We felt that there is too much divergence in policy and practice between these two large economies,” he told Reuters.
On July 6, international media reported that Japan and the EU announced agreement on the broad outlines of a trade deal that will cover nearly 30 percent of the global economy, 10 percent of the world’s population and 40 percent of global trade.
The Washington Post stated the deal, several years in negotiation, would lower trade barriers for products such as pork, wine, cheese and automobiles.
Donald Tusk, president of the European Council, said the goal is to bring the deal into force in early 2019.