Sunday, April 17, 2016

Looks Like SD's Ag Economy Is In For A Tough Year. A Trump Win Will Only Make It Tougher.

     South Dakotans who've been seduced by Donald Trump's bluster about our foreign trade imbalances should come to their senses and think about what his plans about foreign trade
Great.  Just What We Need.
A Trade War When Farm Prices Are In The Dumpster.
(photo from youtube)
would do to South Dakota's number one industry--agriculture.  
His hotheaded threats to build walls and impose huge tariffs on Chinese imports are crazy enough on the face of them, but they're particularly obnoxious in the way they'll affect American farmers and livestock producers.  That all of this comes in the context of the outlook for an awful income year for American farmers makes his campaign promises more concerning than ever.  

    This morning's Rapid City Journal has a story with the disheartening facts. American farmers, according to the USDA, will see this year's total income drop to the lowest level since 2002.  At about $55 billion it will be less than half their 2012 income of $123 billion.  Consider this week's prices in Chicago.  Corn is at around $3.75/bushel, trading at 10 year lows, and down about 60% from its highs of just 3 years ago.  The reason?  As the RCJ piece notes, "the world is awash in corn and soybeans."  
   Given the political environment, the word "world" is the one that needs emphasis when considering what Trump and his trade-war proposals would do to ag producers in the United States, generally, and South Dakota, specifically.  According to the USDA, in 2014 South Dakota's total harvest was worth nearly $8 billion, of which about $4 billion was sold on the export market.  When it comes to livestock I couldn't find data on how much of the meat that's produced from South Dakota-raised animals is exported, but as the livestock markets generally are dependent on foreign exports for much of their value, you can figure that SD livestock producers have a fair amount of their own financial skin in this game.  These are the very folks--and those who
Great.  Keep It Up.  Now Let's Just Hope . . .
That Trump Won't Force You To Eat It.
(photo from
are dependent on the industry (about 125,000 South Dakotans) for their livelihoods--who should be wariest of Trump's wall-building and tariff-hiking threats.  As it turns out, a potentially walled-off Mexico and a tariff-laden China are now consistently listed as being among the top two or three of our state's export markets.

     Just exactly how does Donald Trump think these two countries would react to a peremptory trade provocation like a wall or a stunning tariff hike?  He probably has no idea. One thing you can be certain about, in a world "awash" in corn and soybeans, you can bet that these two immensely important buyers for South Dakota commodities will be shopping elsewhere for their needs.  Just to give you an idea of how nasty it can get, in 2009 Mexico jacked up duties by 25% on U.S. farm goods during a NAFTA-related dispute.  The National Potato Council says that their members lost about half their business ($70 million) with their third largest market. 
     Starting a trade war just as South Dakota farmers are experiencing their lowest prices in a decade is senseless and self-punitive.  Fortune magazine, which knows something about how global business gets done, says of Trump's plan, "it would likely expose the largest U.S. export sectors to steep duties, including aircraft, semiconductors, corn and soybeans (emphasis mine)."  Can you imagine a Chinese grain buyer even considering buying heavily tariffed American commodities in a world where everyone else is scrambling to sell their ultra-cheap products unburdened by American duties?  I can . . . and I just don't even want to think about it.  


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