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Campus Chatter - November 14, 2018
   
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Purdue experts analyze how to plan for tariff continuance
 


WEST LAFAYETTE, Ind. — An end to tariffs could boost prices farmers realize for their corn and soybeans, according to a Purdue University agricultural economist.

With that in mind, producers might want to consider storing their crops until the taxes have been lifted, Chris Hurt said. “If we can settle the tariffs – everybody get that ‘if’ – then I think corn potentially has some movement to the upside, just on that factor, of maybe 20 to 25 cents (a bushel),” he explained.

If the tariffs are removed and “if the strong demand that we think we’re going to see really develops, that gets us back to a $4 corn scenario.” The combination of tight U.S. and world corn inventories could lead to a 20-cent upside potential, Hurt added.

For soybeans, elimination of the tariffs could add $1.25-$1.50 to prices, he noted. The probability of a record U.S. soybean crop, plus increases in acreage in Brazil and Argentina, could hamper soybean prices.

“We’re looking at 800 million more bushels of soybeans in South America,” Hurt explained. “We could really see trouble for the soybean market. You could see beans drop another 40 cents, to $7.90 to $8.70.”

Soybean prices could reach just under $10 once the tariffs are over. “Settle the tariffs and do that early. A lot of producers are saying tariffs have been devastating, particularly to soybean prices.”

Hurt said farmers may say: “I sold some soybeans and corn earlier this spring or very early summer, and I got some good prices then. If I can avoid selling at harvest time while the tariffs are still in place, wait it out and hope that we get the tariffs settled, and then I can get some better prices.”

This is a strategy he predicts many farmers will consider. “This leads to the question of, ‘Well, how long are the tariffs going to be in place?’ Obviously there’s a lot of speculation and a lot of thinking on that.”

Hurt and other Purdue agricultural economists spoke during an August 22 webinar presented by Purdue’s Center for Commercial Agriculture on farm management in challenging times.

The amount of optimism felt by American farmers has declined in a few short months, noted Jim Mintert, also the center director. “If we think back to last spring and back to the month of May in particular, things were starting to look better in crop agriculture here in the Corn Belt, and especially in the Eastern Corn Belt, but things have changed a lot.”

The tariffs and the potential for higher yields impacted optimism in June, he added. From June 1-August 21, soybean prices fell 14 percent, corn dipped 9 percent, wheat declined 5 percent and hogs and milk both decreased 11 percent.

From the end of May to mid-July, November 2018 soybean futures dropped from $10.60 to $8.26 a bushel.

“The longer tariffs stay in place, the more the damage becomes permanent because Brazil puts infrastructure and new land into production,” Hurt pointed out. “All non-U.S. producers will be favored over the U.S. in China, who is the big worldwide buyer of soybeans.”

Producers looking for ways to improve their balance sheets may consider a change in cash rent arrangements, said Michael Langemeier, also the center’s associate director. He mentioned three scenarios based on corn and soybean prices and how those prices might impact cash rents in 2019 and longer-term.

For example, with a corn price of $3.25 and a soybean price of $8, cash rents could fall 3.8 percent next year and 23.1 percent over the next several years. Corn at $3.50 and soybeans at $8.50 could lead to a 2.1 percent drop in cash rents next year and a 13.1 percent decline longer-term.

Corn at $3.75 and $9 soybeans could cause a dip of 0.5 percent in 2019 and a decrease of 3.1 percent over several years.

A flexible cash lease based on revenue would allow tenant and landlord to split some of the risk, Langemeier said. “It’s something to think about and certainly, with all the uncertainty we’re seeing today, it seems to make quite a bit of sense.”

9/12/2018