Author: Raghav Goyal

In our previous analysis, we explored the overall impact of potential trade policy shifts on Southern U.S. agriculture, highlighting significant risks to critical commodities. However, these impacts will vary widely across different states. This analysis focuses on the state-level effects, examining how the worst-case trade policy scenario (Scenario 2 in our previous study) could affect agriculture across individual states within the Southern U.S.

Our analysis focuses on the most extreme trade policy scenario following the 2024 U.S. presidential election. In this worst-case scenario, the U.S. imposes a 60% tariff on Chinese goods and a 10% tariff on imports from other countries. This could provoke severe retaliatory measures from China, including a 60% tariff on U.S. agricultural exports and additional tariffs from other trading partners. These disruptions could significantly impact Southern agriculture, a region heavily dependent on foreign markets. The impact would vary by state, depending on each state’s reliance on specific export markets. By focusing on this worst-case scenario, our analysis highlights the localized risks each Southern state might face.

Our analysis reveals significant economic vulnerabilities at the state level, particularly in critical agricultural commodities. As shown in Figure 1, Texas emerges as the most impacted state, with a projected total trade loss of $3.2 billion. The cotton industry could see an export decline of $847 million, while the beef and dairy sectors are expected to lose $340 million and $184 million, respectively. These figures underscore Texas’s heavy reliance on these major agricultural products, making it highly susceptible to trade disruptions that could severely affect its economy.

Arkansas and North Carolina also face substantial economic challenges as well, with total projected losses of $2.0 billion and $1.8 billion, respectively. As shown in Table 1, Arkansas’s soybean industry could see a decline of $567 million in export value. The poultry and pork sectors in North Carolina are particularly vulnerable, with expected losses of $258 million and $281 million, respectively. These sectors are critical to the state’s agricultural output, and such large-scale impacts could have far-reaching consequences for producers and the broader regional economy.

Other Southern states are similarly at risk, with significant commodity-specific losses under the worst-case scenario. For example, Georgia’s cotton and poultry industries could see combined losses exceeding $600 million, with cotton alone projected to decline by $345 million, as detailed in Table 1. Alabama’s poultry sector is expected to suffer a $213 million loss, a significant blow to the state’s agricultural revenue. Kentucky’s soybean exports could also drop by $350 million, while Oklahoma’s wheat and livestock sectors face a combined projected loss of $386 million. These projected trade impacts emphasize the profound impact trade policy shifts could have on critical agricultural commodities across the region.

Our analysis highlights the severe economic impact that potential trade policy shifts could have on Southern U.S. agriculture under the worst-case trade policy scenario. Texas could face losses of $3.2 billion, with significant hits to its cotton, beef, and dairy industries. Arkansas and North Carolina also stand to lose billions, especially in soybeans, poultry, and pork. These figures underscore the urgent need for targeted, state-specific strategies to mitigate these risks and support the most affected sectors. Policymakers must address these vulnerabilities to safeguard the region’s agricultural economy.

Figure 1. 2025 State-Level Export Loss Projections for the Worst-case Scenario.

Table 1. Projected 2025 Export Losses by Commodity and State for the Worst-case Scenario (million $).

Learn More

Kim, D., Steinbach, S., Yildirim, Y., & Zurita, C. (2024). Understanding Trade Strategy Impacts on Soybean Exports and Farm Income in North Dakota. CAPTS White Paper 2024-01. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4920301.

Goyal, Raghav, Sandro Steinbach, Yasin Yildirim, and Carlos Zurita. “Trade Policy Scenarios after the U.S. Presidential Election and What They Could Mean for Southern U.S. Agriculture.” Southern Ag Today 4(44.4). October 31, 2024. https://southernagtoday.org/2024/10/31/trade-policy-scenarios-after-the-u-s-presidential-election-and-what-they-could-mean-for-southern-u-s-agriculture/

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Goyal, Raghav, Sandro Steinbach, Yasin Yildirim, and Carlos Zurita. “State-Level Effects of Potential Trade Policy Shifts on Southern U.S. Agriculture.” Southern Ag Today 4(50.4). December 12, 2024. Permalink

The outcome of the upcoming presidential election could reshape U.S. trade policy, directly impacting Southern U.S. agriculture. With its dependence on exporting commodities like soybeans, cotton, and poultry, the region faces uncertainty as potential policy shifts loom. Historically, Southern agriculture has been sensitive to changes in trade policies, as seen during recent trade conflicts like the U.S.-China trade war, which led to substantial income losses for farmers and ranchers across the region. Understanding how those new trade policy scenarios, as summarized in Table 1, might unfold is crucial for preparing Southern farmers and agricultural businesses for a turbulent period in global trade.

One possible scenario comes from the Biden administration’s 2024 decision to impose a 20% (trade-weighted) tariff on Chinese electric vehicles and other critical sectors. In response, we could see commodity-specific tit-for-tat trade retaliation from China in 2025, potentially involving a 20% tariff on U.S. agricultural exports. While this scenario is aggressive, it would likely remain a bilateral conflict between the U.S. and China, much like the 2018-2019 trade dispute that significantly impacted U.S. farmers, particularly those in the Southern states.

A more extreme scenario would be for the U.S. to impose a 60% tariff on Chinese goods and a 10% tariff on imports from all other countries. Those who believe that taking a protectionist stance on trade is the best way to increase U.S. jobs have suggested this trade policy approach. However, such a move would almost certainly provoke a strong reaction, with China likely imposing a 60% tariff on U.S. agricultural products and other countries also raising their tariffs on U.S. goods by 10%. The U.S. South’s heavy reliance on foreign markets could create severe disruptions in global trade, with the region’s agriculture being particularly hit.

A third scenario could involve the U.S. Congress revoking China’s Permanent Normal Trade Relations (PNTR) status, which some lawmakers believe is necessary for national security and economic reasons. This could result in a 9.5% increase in tariffs on Chinese goods. In this scenario, China is expected to respond with an equivalent tariff on U.S. agricultural exports. Although this scenario focuses more on the U.S.-China relationship, it presents significant risks for Southern agriculture.

Table 2 presents each scenario’s projected export losses. Southern agriculture is closely tied to global markets, with key exports like soybeans, cotton, poultry, and livestock playing a pivotal role. Take soybeans, for example. This crop is central to agriculture in Arkansas, Mississippi, and Kentucky. Under the first scenario, we estimate soybean exports could fall by 32.6%, or about $1.2 billion. The third scenario presents a more moderate decline of 15.5%, equating to a loss of approximately $0.6 billion. If the second, more extreme scenario were to unfold, soybean exports could drop by a staggering 67.6%, which translates to a loss of $2.4 billion. Such a decline would likely lead to excess soybeans in domestic markets, pushing prices down and putting financial pressure on farmers.

Cotton, another critical crop for Southern states like Texas, Georgia, and Arkansas, would also face serious challenges. Under the first scenario, cotton exports could decrease by 8.4%, leading to a $0.5 billion loss. The third scenario predicts a 4% decrease, amounting to a loss of around $0.2 billion. The drop could be as high as 38.8% in the second scenario, or $ 2.1 billion. These losses could have ripple effects throughout the regional economy, squeezing farm incomes and adding financial stress. The poultry industry, vital to Georgia, North Carolina, and Alabama, would not be spared. In the first scenario, poultry exports might shrink by 8.8%, while in the second scenario, the decrease could reach 38.2%. This would amount to billions in lost revenue, hitting rural economies hard.

Potential trade policy scenarios following the U.S. presidential election could considerably affect Southern U.S. agriculture. While the exact outcomes will depend on the policies that are ultimately implemented, the risks to the Southern agricultural economy are clear. By diversifying export markets, investing in value-added agriculture, strengthening domestic markets, and advocating for supportive trade-relief programs, Southern U.S. states could better position themselves to deal with the challenges posed by these potential shifts in trade policy. Southern agriculture must be prepared and adaptable in the face of these uncertainties, ensuring it can thrive in an increasingly competitive global market disrupted by protectionist trade policies.

Learn More

Kim, D., Steinbach, S., Yildirim, Y., & Zurita, C. (2024). Understanding Trade Strategy Impacts on Soybean Exports and Farm Income in North Dakota. CAPTS White Paper 2024-01. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4920301.

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Goyal, Raghav, Sandro Steinbach, Yasin Yildirim, and Carlos Zurita. “Trade Policy Scenarios after the U.S. Presidential Election and What They Could Mean for Southern U.S. Agriculture.” Southern Ag Today 4(44.4). October 31, 2024. Permalink

The sudden disruption in the Red Sea, one of the world’s most critical maritime passageways, has sent shockwaves through global trade, having the potential to harm agricultural exports from the Southern U.S. We delve into the manifold implications of this blockade, examining its direct impact on trade flows, freight rates, and the challenges posed by the limited capacity at the Panama Canal for Southern agricultural exports.

The Red Sea blockage, precipitated by heightened military tensions and attacks on commercial vessels by the Houthi terrorist organization, has led to a dramatic decrease in shipping activities through this critical route. As Figure 1 shows, about 500 cargo vessels were diverted via the Cape of Good Hope due to the attacks in the Red Sea. This diversion implies that the volume of container traffic in the Red Sea experienced a more than 50 percent decline in December, with the current volume almost 70 percent below normal as of January 18, 2024. This decline is a stunning indication of the magnitude of disruption faced by global shipping lines, including those serving agricultural exporters in the Southern U.S.

The Southern U.S., a powerhouse of agricultural exports of grains, soybeans, cotton, and forest products, could be negatively affected by this disruption. The rerouting of vessels around the Cape of Good Hope, necessitated by the Red Sea blockage, has added up to 20 days to shipping times and increased freight rates. These delays could considerably impact perishable agricultural products, risking product spoilage and financial losses. Furthermore, the automotive sector, akin to the agricultural industry, has already started experiencing production adjustments due to the maritime delays. This parallel suggests that agricultural exporters from the Southern U.S. could face similar operational and logistical challenges, further compounding the adverse effects of the Red Sea crisis on the region’s agricultural economy.

A direct consequence of the blockage has been the surge in ocean freight rates. Figure 2 illustrates an increase in the average cost of transporting a standard container (measured as a twenty-foot equivalent unit, TEU) from about USD 700 in November 2023 to over USD 1,900 in January 2024. On some routes, this increase is even more substantial. For instance, the freight rate from China to Northern Europe rose from nearly USD 750 to over USD 2,000 as of January 18, 2024. Although these figures are specific to the Europe-Asia route, they reflect a global trend in rising freight costs, which inevitably impacts the cost of exporting agricultural products from the Southern U.S. to international markets.

The Panama Canal’s limited capacity further complicates the situation. Initially rerouting from the U.S. Atlantic Seaboard and the Gulf of Mexico to Asia via the Suez Canal, many carriers have shifted back to the Panama Canal. This redirection will lead to increased congestion and delays, exacerbating the logistical challenges for Southern U.S. exporters who rely on this route for more efficient access to Asian markets.

The trade dynamics with South and Southeast Asia, an important and growing market for Southern U.S. agricultural exports, could be particularly affected. The extended transit times and shifting shipping routes disrupt the timely delivery of goods. Figure 3 shows that the daily freight capacity in the Red Sea fell by almost 70 percent below the expected level in January 2024. As cargo vessels reroute and face delays, the availability of products in South and Southeast Asian markets is affected, potentially leading to lost sales and strained trade relationships. The ripple effects of these disruptions are evident in increased insurance costs for vessels transiting high-risk areas like the Red Sea. These rising costs, which reached one percent of the vessel’s value, add an extra financial burden on shippers and, by extension, agricultural exporters in the Southern U.S.

In response to these unprecedented challenges, agricultural exporters in the Southern U.S. should explore alternative logistical strategies. These include diversifying port usage, considering air freight for urgent shipments, and re-evaluating supply chain routes to mitigate the impacts of delayed deliveries and increased costs. However, these adjustments come with their own financial and operational complexities.

The Red Sea blockage by the Houthi terrorist organization represents a substantial disruptor in the global trade ecosystem, with potentially profound implications for U.S. agricultural exports to South and Southeast Asia. The escalation of freight costs, extended shipping durations, and the strain on alternative routes, such as the Panama Canal, paint a challenging picture for 2024 agricultural exports from the Southern U.S. As the situation evolves, agricultural stakeholders must remain agile, leveraging data-driven insights and innovative solutions to navigate these turbulent waters while also considering long-term strategies for resilience in an increasingly uncertain global market environment.

Figure 1: Close to 500 cargo vessels diverted due to Houthi attacks on ships in the Red Sea.

Figure 2: Drewry World Container Index increased by 75 percent since December 2023.

Figure 3: Daily freight capacity in the Red Sea falls by 66 percent below the expected level.

Learn More

Hinz, Julian and Mathias Rauck (2024). Cargo volume in the Red Sea collapses. Kiel Institute for the World Economy, Press Release 01/2024.

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Goyal, Raghav, Sandro Steinbach, Yasin Yildirim, and Xiting Zhuang. “Southern U.S. Agriculture Faces Headwinds in Asia Amid Red Sea Shipping Disruptions.” Southern Ag Today 4(4.4). January 25, 2024. Permalink

The ongoing conflict between Russia and Ukraine, which began in February 2022, has had substantial humanitarian and economic implications. Among these repercussions is the disruption of trade, especially in agricultural markets. Ukraine’s grain and oilseed exports contracted by around 80% at the onset of the conflict. This has led to notable price fluctuations, particularly for crops like wheat and corn. For instance, wheat futures prices increased by up to 35% in response to the armed conflict. Despite these market changes, the price increases have been less significant than initially anticipated. To facilitate the movement of agricultural products, the European Union established the EU Solidarity Lanes in May 2022. Additionally, the Black Sea Grain Initiative was established with the support of Turkey and the United Nations to alleviate the challenges of blocked Black Sea ports due to the conflict. 

Research into market reactions to major events is extensive, but fewer studies have examined how conflicts impact crop prices. Some research on this conflict suggests that crop prices did rise, but not due to overreactions. Moreover, the initiatives to improve transportation and unblock ports had limited influence on traders’ perceptions of the market. The price of wheat was more affected than corn, indicating concerns about broader disruptions in Black Sea shipments. Interestingly, other crops like soybeans responded less to the conflict or the port unblocking initiative.

Figure 1 shows how the futures price index for select grains and oilseeds responded weeks after the invasion and when the Black Sea Grain Initiative was established. The results in panel (a) show that within the initial nine weeks of the conflict, future prices of agricultural crops were about 16% higher compared to a hypothetical scenario without the conflict. As seen in panel (b), after the introduction of alternative transportation routes, the futures price index experienced a gradual decline. This suggests that the transportation initiative had a positive impact by reducing market uncertainty. However, the broader market sentiment was not significantly altered by the Black Sea Grain Initiative, and prices did not decrease further. A similar pattern is seen for the grain deal renewal in the Fall of 2022. These findings are significant for southern agricultural producers involved in the decision-making and trading of these commodities, highlighting the complex dynamics of market responses to geopolitical events and mitigation efforts.

Figure 1: Agricultural Commodity Futures Market Response to the Russia-Ukraine War and the Black Sea Grain Initiative.

Learn More

Carter, C. A., & Steinbach, S. (2023). “Did Grain Futures Prices Overreact to the Russia-Ukraine War?” MPRA Paper No. 118248. Available at: https://mpra.ub.uni-muenchen.de/id/eprint/118248.

Goyal, R., & Steinbach, S. (2023). Agricultural Commodity Markets in the Wake of the Black Sea Grain Initiative. Economics Letters, 111297. Available at: https://doi.org/10.1016/j.econlet.2023.111297.

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Goyal, Raghav, and Snadro Steinbach. “Agricultural Commodity Markets Navigate Uncharted Waters Amidst Russia-Ukraine Conflict.” Southern Ag Today 3(34.4). August 24, 2023. Permalink