The trade war and coronavirus disruptions reveal America’s dependence on China. One expert confronts the impact on U.S. agriculture.
The ag sector reevaluates its reliance on the Chinese market. AgCountry Farm’s Howard Olson states, “Around July 1 of 2018, the drop in that basis from about a 96-under basis, went down to $1.38 under and eventually to $1.49 under, and this is when the Chinese tariffs came into place and the trade war hit us.”
Tariff tensions rattled prices. “The futures price had dropped about $1.50 in that time period, but the basis price also dropped a good 50-60 cents during that period,” Olson adds.
According to Olson, the fall in cash prices declined as the coronavirus pandemic cut ethanol demand. “We locked down the country, and then had Russia start an oil-price war with the Saudis,” he notes. “So, our demand for ethanol dropped dramatically, plants had to reduce production, some went into a hot-idle and some shut down. This hurts the corn farmers who had contracted corn with those ethanol plants to deliver.”
Borrower’s credit risk ratings are picking up after deteriorating for over a decade. “From 2016 to today, we’ve had difficult to no cash flows, there’s been a struggle to maintain debt services and working capital, and especially after the Chinese trade issues. Big yields and outproducing helped, but otherwise, we’re becoming more dependent on government payments.”
While some farm income looked good in 2019, Olson says that those numbers do not tell the whole story at the farm gate level. “We have benchmark data that shows 2019 net farm income of corn and soybean growers average $63,000 dollars. Now that was net farm income before family living costs and taxes were taken out. However, the top 25 percent of producers in the benchmark averaged $321,000 dollars,” Olson concluded. “If we’ve got the top 25 percent at $321,000 dollars and overall average at $63,000 dollars, that means there are a lot of farmers that had negative earnings in 2019.”