HPPR - 18 December 2019
Struggling Missouri farmers question ’bonanza’ promised under trade deal with China
By Frank Morris
A tentative agreement easing trade restrictions with China seems like great news for farmers, who’ve been pummeled by the trade war. Some farmers, though, are skeptical. They worry that ag exports will suffer for years, and they’ve got history to back them up.
Prices for the corn and soybeans started rising last week, on rumors of a possible trade deal. Good news for Tom Kreisel, who farms near tiny Houstonia, Missouri.
“The last couple of days, they’d been up,” says Kreisel. “But they had took a nosedive before that, so we need to make that back.”
The prices for U.S. farm commodities tanked in the summer of 2018 after China announced retaliatory tariffs against them. Many farmers lost money last year. The Trump Administration has paid out about $28 billion in so-called Market Facilitation Payments over the last two years to compensate some farmers for what they have suffered under the trade war.
It’s hard to calculate those losses, and by some estimates, corn and soybean farmers have been overcompensated. Still, most farmers emphatically say they’d rather have free trade than taxpayer-funded aid.
“I would 10 times rather have a market than to have somebody give me a few dollars cash and then brag about it,” says John Vogelsmeier, who farms near Sweet Springs, Missouri.
Even with recent gains, soybeans are still about 20% less valuable than they were when the trade war started. Vogelsmeier says no one’s banking on the recent price gains. In fact, the terms of the tentative agreement haven’t been made public.
“Everyone’s trying to nail down just what has been agreed to,” says Scott Irwin, an agricultural economist at the University of Illinois.
President Trump has said the deal will force China to spend $50 billion a year on U.S. farm products. That’s double what the Chinese were buying before the trade war.
U.S. negotiators say that China has promised to buy at least $40 billion in U.S. products each year. Which is still billions more than China has ever purchased from us.
Irwin says this roughly $16 billion jump in sales would be great for farmers — if it materializes.
He’s concerned that this de-escalation may come too late to avoid long term damage to the trading relationship.
“From the beginning, that has been for me, personally, the nightmare scenario,” says Irwin. “History suggests that once you break an important relationship trade wise like this, it is very difficult to fully recover your market share.”
The Russian grain embargo, when the United States abruptly stopped wheat sales to the Soviet Union in 1980, is seen as a precursor to the farm crisis of the mid-1980s. The price of wheat tanked and stayed low for years. Like just about every farmer of a certain age, John Vogelsmeier clearly remembers the floor dropping out. In a way, he’s still living it four decades on.
“We can’t raise wheat to be profitable here because of what happened,” says Vogelsmeier. “And I’m afraid that’s exactly what is going to happen with what is going on today.”