Ag expert: Trade war means farmers take it on the chin
Farmers and ranchers will be the first ones hurt if a full blown trade war develops, because agricultural products are among America's top exports — and farm goods are what retaliatory tariffs will target in a trade war, said Lynn Paulson, Bell Bank's director of agribusiness development.
President Trump has imposed tariffs — essentially taxes on imports — on goods from China, Canada and the European Union, and those nations have responded with tit-for-tat retaliatory tariffs against American exports."The impact is considerable (already)," Paulson said. "Tariffs is one of those 'black swan' events you didn't see coming — it's one more layer of uncertainty on an already uncertain business."
The retaliatory Chinese tariffs on soybeans will cost American farmers "well north of $100 an acre," he said. And that's at a time when farmers are already struggling to make a profit, he said.
Following the unusual "super cycle" boom years of 2006-2012, the farm economy's economic cycle turned downward, "and we simply haven't been able to pull our way out of that," Paulson said. "We were hoping this year that some stressed producers would start making their way out of that, but the tariffs make that very difficult."
The retaliatory tariffs on soybeans and pork have dragged down prices on other farm commodities, too, he said, and retaliatory tariffs on steel and aluminum have made grain bins and farm equipment more expensive.
"Agriculture probably pays the biggest price when there are these types of disputes," he said.
President Trump is essentially gambling with the farm economy, hoping to negotiate better general trade terms for the United States. "Is Trump really a good negotiator? Let's hope so. It's really high-stakes poker right now," Paulson said. "Middle America elected Trump. I hope he remembers where his base of support came from."
But the agricultural economy is not all doom and gloom, he said. "Land values have hung in there really well; you'd think in this economic environment values would drop, but for the most productive land, values are stable. There are still more willing buyers than sellers at this point."
Paulson believes that long-term tailwinds for agriculture are still favorable. "Demand for commodities are still high worldwide and American farmers are still the most productive in the world." Cattle producers are doing all right, but grain producers and dairy producers are hurting, he said.It's a tough way to make a living, and only well-run operations will be profitable, he said.
Owning farmland has been a "very, very good investment over the decades," he said. The values have increased kind of like Minnesota lakeshore.
But this might be the time for owners of money-losing operations to get out of the business before they sacrifice everything, he said. Too many people think that if they quit farming or ranching, they've failed. But "not making a good economic decision," is the real failure, he said.
"There has probably never been more risk in agriculture, and never more opportunity: The bottom third that are struggling are an opportunity for the top third — there are some very, very sharp producers out there."
Paulson will speak July 30 in Fergus Falls and Moorhead at a free agricultural symposium with local and national ag finance experts. He will share his experience and insight on the current challenges and opportunities in agriculture.
David Kohl, one of the nation's leading authorities on ag economics, will also be at the seminars to discuss the local implications of global economic issues. He'll share the variables to watch in the U.S. economy, and he'll reveal 10 big trends that will influence farmers' business and family lives.
"I offer straight talk in a changing environment without political bias," Kohl said in a Bell news release. "I just tell it like it is."