Tariff Uncertainty: Challenges and Opportunities Ahead for Agriculture

The exclusion of products compliant with the United States-Mexico-Canada Agreement (USMCA) helps soften the blow of the sweeping reciprocal tariffs President Donald Trump announced on Wednesday, but reaction has been mixed.

The nation’s soybean farmers are concerned about the Trump administration’s tariff plan and possible retaliation from China, their largest customer, says Caleb Ragland, a Kentucky farmer and president of the American Soybean Association (ASA),

“Exports are right at 50% of our markets, so we use half of the soybeans produced in the United States domestically, and the other half are exported,” he says.

Soybean producers are still dealing with the fallout from the trade war in 2018, and they say tariffs make them less competitive, causing customers to shift to other sources.

“We were exporting one third of the U.S. soybean crop to China before the previous trade war,” Ragland says. “Last marketing year, we exported about 24% of our production.”

Soybeans prices are down 40% from three years ago and the cost of production is high, he adds, so farmers can’t withstand another trade war.

Like soybeans, market access and exports are important to the corn sector, with 15% of U.S. corn exported overseas, says Kenneth Hartman Jr., president of the National Corn Growers Association and an Illinois farmer.

“Trump is a negotiator. We’re hoping the President, through this process, can come out where we can actually see more products going into exports, and hopefully that will drive higher prices,” he says.

Referencing USMCA, Hartman says the agreement, negotiated by Trump during his first term as president, has been beneficial for corn growers because Mexico is now the No. 1 market for U.S. corn and Canada is the No. 1 market for ethanol.

“We have some great trade partners, and we want to keep them,” he adds. “We’re hoping under these negotiations, everybody takes that into consideration.”

The National Cattlemen’s Beef Association (NCBA) welcomes President Trump’s move as a way to slow beef imports and level the playing field in world markets, citing Vietnam’s 30% tariff on U.S. beef, Thailand’s 50% tariff and even Australia’s $29 billion in beef sales to the U.S.

“They have played games, they have stonewalled and they have come up with endless non-science-based reasons to not reciprocate access for our producers into their market,” says Ethan Lane, senior vice president of government affairs for NCBA.

Lane, who attended the Rose Garden announcement, says they’re in the camp of short-term pain for long-term gain with tariffs a negotiating tool for better trade deals.

“While we’re not a big fan of tariffs, generally, we do think what the president is trying to do using this tool could achieve some real benefits for U.S. cattle producers as far as being treated more fairly in those foreign markets,” Lane says.

Will Farmers Receive Aid to Offset Tariff Impact?

One question that remains: Will farmers be compensated if tariffs impact their bottom line?

Agriculture Secretary Brooke Rollins said on Fox News on Thursday the Trump administration is “months away” from deciding to make payments to farmers to offset any impact from tariffs.

In the case of any economic loss from tariffs, Rollins has said the administration would consider making payments to farmers, which occurred during Trump’s first term as president when he compensated farmers to offset losses from a trade war with China.

Are They Really Reciprocal Tariffs?

Meanwhile, market analysts say the announced tariffs are not by definition reciprocal.

“It turns out what they’ve really done is taken the gap in goods, the amount of traded goods we get from a country and the amount of goods that country gets from us, and when there’s a deficit, they do some math and come up with the tariff rate,” says Kent Beadle, DTN market analyst. “So it’s certainly not reciprocal.

On Thursday, most ag markets had a negative reaction on fear of retaliation, leaving many to wonder how long it will take for markets to stabilize?

“I think if we continue to see strong export sales … a lot of this might start to fade away a little bit,” Beadle adds.

A silver lining is a lower U.S. dollar index can offset some of the blow of tariffs, he says.

How Will U.S. Trading Partners React?

Based on history, Dan Basse, AgResource Company president, says if tariffs are in effect longer than a quarter or two — three to six months — they tend to stick around.

“Look back to 2018 and what Trump put on China, it’s still in place today and stayed through the Biden administration,” Basse says. “The message is, if you’re an importing country, try to get [the tariff] off as fast as you can. Negotiate your way out of it, because once the United States starts to enjoy the income flow, it’s hard to get them off of that position. That’s why I say, I think we’ll know in the next three to six months where this all goes and if Trump really is the negotiator and deal maker we hope he is. If it’s longer than six months, I’m afraid these tariffs are going to be with us for quite a while, and that’s probably not good for industry or agriculture.”

Here’s a list of several U.S. trading partners and how Basse thinks the tariffs might affect trade going forward.

Canada: “They just put 25% tariffs on U.S. auto, which was expected. I don’t think there’ll be any additions based on what happened [Wednesday]. We kind of had Mexico and Canada get a free pass for a while. For agriculture, I think this was a really big deal, and the reason the corn and wheat markets didn’t sell off. China’s out there, and that’s a bean story, which is why beans fell hard. The grains held together, though, and I think it’s because of Trump’s willingness to look at USMCA and say, OK, for now, we’re going to keep it where we’re at.

“I really do think [Canada] should take it as a win. I was just up there in Edmonton doing meetings, and I know the hostility toward America at the moment, but I still believe with the new prime minister and the direction Trump gave us yesterday, it was a win, and there’s still ability to work together.”

Europe: “I think Europe is going to come out with guns blaring. I believe they’re angry. I believe the countries have come together a little bit like Canada, on a nationalistic standpoint against the United States, so look for some hostility toward us. The EU has shipped most of its corn, so we’re happy about that. But going forward, I don’t see the EU market as being important again, unless there can be some negotiation, some solution going forward.”

Brazil: “I think the Brazilians biggest concern is the value of the real. The real sank [on Thursday] to 560, which is down a bunch. As the dollar continues to weaken and the real rallies, that’s a win for U.S. agriculture. I believe the dollar is the key going forward, so as I’m watching it, if indeed the tariffs produce a liquidation of dollar holdings, that’s not bad for American agriculture, and it could really slow the expansion down in Brazil.”

Australia: “We get roughly 32% of our grind [hamburger] from Australia. The fast-food chains love Australian beef because of its lower fat content. With the tariffs, I think we’re going to be paying more for our lean beef grind.

“The restaurant chains I’ve been talking to are concerned about trying to source such lean hamburger in the United States.

“I think [tariffs] are a win for the U.S. cattle industry in general. What is concerning is the economic impact and what U.S. consumers will do. I do believe recession chances have doubled since the tariff announcements, and we are going to see firms laying people off and trying to understand margins going forward. That’s not helpful. But how we balance trade and domestic demand will be key for the beef market and the cattle market over the next couple of months.”

Russia: “I think [President Vladimir Putin] is going to keep marching with the war. He’s going to be difficult to deal with. The ruble is strengthening, giving them a little more fortitude. I imagine the Russian farmers are not happy about [the reciprocal tariffs], and maybe they won’t plant as much grain going forward. But other than that, I think it will be status quo, and [Putin] is kind of teaming up, if you will, with China and that BRIC alliance to somehow show their strength against the United States.”

Vietnam: “They’re an important importer of world corn. My question is, will the Trump administration use tariffs to somehow boost U.S. export of grains to Vietnam, or is this really just a tactic to raise revenue? I think that’s key in the next three or four months. Is there some negotiating position such that it benefits U.S. agriculture?

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