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  • Trade Policy Scenarios after the U.S. Presidential Election and What They Could Mean for Southern U.S. Agriculture

    Trade Policy Scenarios after the U.S. Presidential Election and What They Could Mean for Southern U.S. Agriculture

    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.

    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

  • Global Wheat Shortfalls Could Signal Bullish Potential for U.S. Wheat

    Global Wheat Shortfalls Could Signal Bullish Potential for U.S. Wheat

    The October 16, 2024, edition of Southern Ag Today indicated a slightly bullish wheat situation within the United States (Welch, 2024). Today’s article discusses this further using three charts: U.S. Wheat Imports by Country, Wheat Production by Country, and Ending Stocks by Country. Wheat is a global crop, with the U.S. accounting for just 7% of the world’s wheat supply (Welch, 2024). Thus, U.S. fundamentals may not be the best indicator of a bullish outlook. Generally, the U.S. has a few uses for wheat, including food, seed, feed, and exports. Year over year, we see similar quantities of wheat used for food, seed, and feed. Significant changes in demand, which could result in a bullish outlook, typically occur due to changes in exports. 

                      Figure 1 illustrates U.S. wheat imports by country. In general, Mexico is the largest importer of U.S. wheat. China is a vast producer – typically keeping most of its production for domestic use – but it is also a significant importer. In 2023, China imported more wheat than usual due to quality deterioration. This situation is unlikely to occur again in 2024, as China is projected to have above-average production (Figure 2) and standard quality. However, the U.S. could see a price increase due to smaller production and ending stocks in the European Union (Figures 2 and 3). The E.U. has had a bad year of production with low quality in crucial wheat producing countries, including Germany and France. Consequently, E.U. stocks are projected to be the lowest since 2000. French wheat, similar to U.S. soft red winter, is used for food products like cakes, cookies, and pastries, requiring lower-protein wheat. German wheat is similar to U.S. hard wheats, including hard red winter wheat, and it is often used for bread and pizza dough.  

                      The low stocks and production situation could cause the E.U. to limit their exports, opening opportunities for more U.S. exports to countries that typically buy wheat from the European Union.  It could also result in more direct U.S. exports into the E.U., boosting U.S. wheat price. A series of U.S. sales to the E.U. could indicate bullish action in the wheat market and be a crucial indicator to sell this marketing year. 

    Figure 1: U.S. Wheat Imports by Country

    Figure 2: Wheat Production by Country

    Figure 3: Ending Stocks by Country

    Sources:

    U.S. Department of Agriculture. (2024). Production, Supply, and Distribution database. Foreign Agricultural Service. https://www.fas.usda.gov/data/psd-online

    Welch, J. Mark. “Recap of the October WASDE for Grains and Soybeans.” Southern Ag Today 4(42.3). October 16, 2024. Permalink

    Gardner, Grant, and Frayne Olson. “Global Wheat Shortfalls Could Signal Bullish Potential for U.S. Wheat.“ Southern Ag Today 4(44.3). October 30, 2024. Permalink

  • Fewer Heifers on Feed

    Fewer Heifers on Feed

    USDA released the October Cattle on Feed report on Friday, October 25th.  The most anticipated number in the report was the quarterly number of heifers on feed.  Once per quarter, the report includes a breakdown of the number of steers and heifers on feed.  The heifers on feed have been some evidence of any herd rebuilding beginning.  The report indicated 40,000 fewer heifers on feed October 1 than last October 1.  That is less than one percent below last year.  It is the second largest number of heifers on feed for October 1 in the data going back to 1996.  

    The continued large number of heifers on feed does not indicate much herd rebuilding in the works.  The drought monitor map indicates some drought across most of the country likely reducing some enthusiasm for heifer retention.  But, on the other hand, longer feeding periods mean that heifers are on feed longer, which would keep the number on feed higher.  A few more spayed heifers have been imported from Mexico this year than last, also contributing to more heifers on feed.  

    Now for the headline numbers.  Feedlot marketings in September were two percent larger than the year before.  That translates to almost 2,000 head per day more than last year.  Placements were two percent smaller than a year ago.  More marketings and fewer placements resulted in the total number of cattle on feed being 4,000 head fewer than last October 1.  The number on feed was less than one-tenth of one percent below a year ago, so not much really but, it was the first month with fewer cattle in feedlots since June.  All in all, the report did not offer much of a surprise.

    Anderson, David. “Fewer Heifers on Feed.” Southern Ag Today 4(44.2). October 29, 2024. Permalink

  • The Long Term Economic Struggles of Southern Cotton Farmers

    The Long Term Economic Struggles of Southern Cotton Farmers

    Southern agriculture faces unique challenges, with limited crops that are both suitable and competitive in the region. Cotton, one of the major row crops in the Southern United States, has historically been favored for its drought resistance, making it well-suited to the region’s soil and weather conditions. Cotton is grown from Virginia to California across the southern U.S. In 2024, the U.S. is projected to produce 14.5 million bales of cotton.  While market prices are expected to be around $0.66 per pound (USDA WASDE), the value of cotton production is approximately $4.6 billion nationwide, underscoring its essential role in the Southern region.

    Recent data from the USDA’s Economic Research Service highlights the complexities of cotton farming, showing that growers have faced financial challenges over the years. The data in Figure 1, covering the period from 1997 to 2023, highlight the ongoing profitability challenges Southern cotton farmers face. This data accounts for all costs incurred by participants in the production process, including farm operators, landlords, and contractors. The data reflects the actual production costs incurred by cotton farmers, including expenses for labor, equipment, and other inputs, as well as the revenue generated from cotton sales. However, these figures do not include government payments and crop insurance indemnities received by producers during this period. The government payments include traditional farm bill programs for farmers with base acres, as well as ad-hoc disaster relief programs. 

    In competitive commodity markets, where agricultural goods compete under perfect competition, economic theory suggests that profits attract more producers. This increase in supply drives prices down, eventually reducing profitability. Over time, long-term economic profitability tends to stabilize around zero, which becomes the level needed for economic sustainability for the industry. Producers are compelled to become more efficient in their operations to achieve profitability above this threshold. However, over the 27-year period, cotton only managed to exceed total production costs in four years. On average, cotton growers faced annual losses of $94 per acre, highlighting the crop’s ongoing struggle to cover production costs. 

    This consistent lack of profitability is unsustainable for cotton producers. Farmers’ inability to cover total costs, including fixed expenses like long-term asset depreciation for buildings and equipment, presents a serious risk to the agricultural future. Many farmers are increasingly relying on personal equity to keep their operations running, a practice that is financially unsustainable in the long term. As a result, many are turning to government support, including farm bill programs and disaster relief initiatives, which can provide a safety net during challenging times. 

    With long-term economic loss for cotton production, the economic health of Southern agriculture and the livelihoods of its farmers are at risk. If this issue is not addressed, it could result in a prolonged decline in agricultural production, eroding the economic foundation of farming communities across the Southern region.

    Figure 1. Cotton Production Total Costs, Revenue, and Returns for Producers in the United States (1997 – 2023).

    Data Source: U.S. Department of Agriculture (USDA) Economic Research Service (ERS), Commodity Costs and Returns for Cotton.

    References: 

    U.S. Department of Agriculture (USDA) Economic Research Service (ERS), Commodity Costs and Returns for Cotton, Updated on 10/1/2024.

    U.S. Department of Agriculture (USDA), World Agricultural Supply and Demand Estimates (WASDE), WASDE – 652, September 12, 2024. 

    Liu, Yangxuan. “The Long Term Economic Struggles of Southern Cotton Farmers.” Southern Ag Today 4(44.1). October 28, 2024. Permalink

  • What Other State Decisions Can Tell Us About Right-to-Farm Laws

    What Other State Decisions Can Tell Us About Right-to-Farm Laws

    Each state has a right-to-farm law that protects agricultural operations from lawsuits that the farm is a nuisance.  In many cases, these laws vary from state to state.  Although the laws vary, decisions from other states often help us understand how these laws might be interpreted in other states.  Two recent decisions out of Kansas and Maryland highlight what farms might want to consider when determining if their operation meets the guidelines in their states.

    In Kansas, the state’s supreme court recently upheld the decision of the Court of Appeals of Kansas not to allow a hog operation to utilize the defense.  The hog farm had expanded, and the new facilities required additional pipelines to be run in other fields to apply effluent from the operation.  The operation never got permission from the neighboring landowners to run the pipelines along the county road.  The Supreme Court of Kansas agreed that the easement for the road to the county only created a right to use the road and did not give permission to run pipelines along the right of way without the permission of the neighboring landowners.  Because the Kansas right-to-farm law required the operation to comply with all laws, the operation could not use the law since they had committed trespass to put in the pipelines.  That decision is in Ross v. Nelson (Kan., 2024).

    In Maryland, a new farmland owner switched from using chemical fertilizers to a form of biosolids as fertilizer. Neighbors complained, and the Appellate Court of Maryland recently upheld the producer’s right to switch practices on the farmland and maintain the right-to-farm law protections.  Maryland state law requires an operation to exist for one year to gain protection, and the court agreed that switching nutrient management practices did not reset that clock.  The court pointed to legislative history, stating that the legislature should have fully understood that the one-year provision would allow operators to switch practices without resetting the one-year clock.  That decision is In the matter of Cheryl Lewis, et al. and is currently being appealed to the state’s supreme court.

    I realize many of you are not in those states, but those decisions will often remind producers that they need to understand what their state’s right-to-farm law requires to ensure the farm can utilize the defense if needed. If you do not know your state’s right-to-farm law, the National Ag Law Center has compiled a list of all 50 states here.

    Goeringer, Paul. “What Other State Decisions Can Tell Us About Right-to-Farm Laws.” Southern Ag Today 4(43.5). October 25, 2024. Permalink