Trade Tops Conversation at Ag Outlook Forum

DIGGING DEEPER…….

This year’s Ag Outlook Forum, presented by the Agricultural Business Council and Agri-Pulse Communications drew another record audience of almost 300 agricultural economy leaders from the region. Attendance was all the more remarkable considering that less than half were gathered at Kansas City Marriott Downtown with social distancing precautions in effect. The annual symposium was a virtual/hybrid meeting. Agri-Pulse founder and president Sara Wyant opened the forum noting the program was designed to offer insight on “what you can expect in an exceptional situation,” referring to the COVID-19 pandemic. Missouri’s U.S. Congressional Representative Emanuel Cleaver II welcomed the audience virtually from “the city of peace, love, congeniality and collegiality – otherwise known as Washington. D.C.,” sarcastically referring to the current divisive atmosphere of the Capital.

By Dennis McLaughlin, McLaughlin Writers LLC

Gregg Doud, chief agricultural negotiator at the Office of the United States Trade Representative, said it is feasible to think China could meet its Phase One trade commitment with the U.S. to purchase at least $36.5 billion in agricultural products by the end of the year. He pointed to China’s increasing agricultural imports – China imported $124 billion from the world in 2018 and $133 billion in 2019. The country is on course to import $141 billion in 2020. When looking at it from that vantage point, Doud said China's Phase One commitment to the U.S. (from $24 billion for the base year of 2017 to $36.5 billion [this year]), is possible.

Despite an absence of in-depth media and federal department updates regarding U.S.- China trade negotiations, progress is taking place. Doud said his team and the Chinese “are talking.” He noted in the last three years 33 major ag negotiating sessions have taken place. He also pointed out that negotiations aren’t limited to volume, price and delivery concerns. There are structural processes that need to be agreed upon, like the number of U.S. facilities and enterprises, for example, that the Chinese would approve for exporting activity with China. Before the Phase One agreement, only 1,500 U.S. facilities were eligible. Now there are 3,500. Issues still being worked out pertain to the use of ractopamine and biotechnology.

Doud said structural changes actually are a significant advancement not discussed often. The original agreement called for 57 structural changes, and Doud estimates that China has completed 50 of those. Outstanding issues pertain to the use of ractopamine and biotechnology. Additionally, the parties have been addressing steps China needs to take to ensure greater protections or intellectual property rights, remove impediments to American companies in the areas of financial services and the elimination of forced technology transfer.

Even if China's purchase commitments are not met, the two countries will continue the dialogue and discussions. “China indicated they intend their very best to do this,” Doud said, adding, “It isn’t just rhetoric; they are making purchases.”

Got Milk?

Gregg Doud also made note that ag products comprised the “biggest” lot of Phase One exports to China. And dairy products are the “biggest” component of the ag sector. Former USDA Secretary Tom Vilsack concurred. Now president and CEO of the U.S. Dairy Export Council, Vilsack said his group and the dairy industry are encouraging China to buy more cheese and incorporate whey into national protein consumption programs. Agri-Pulse’s Sara Wyant pointed out that the dairy industry was a leader in creating new food products. To put down a bigger footprint in Asia, Vilsack mentioned the USDEC’s involvement in establishing a Center for Dairy Excellence in Singapore.

There are challenges for the dairy industry. Vilsack stated, “Canada has already begun implementing USMCA in a way that thwarts its market access promises and prevents U.S. dairy from making full use of the benefits that Congress and the Administration fought so hard to secure. There are also unanswered questions concerning how Mexico will translate its commitments to safeguard common-name cheeses into action. These are unresolved concerns that affect everyday dairy farmers and workers across our industry.”

Doud said he is watching the implementation of USMCA, particularly the situation with dairy in Canada. Another important focus will be the biotechnology situation with Mexico. Two key issues included in the USMCA deal are the biotechnology component and the enforcement mechanism. Doud said the new enforcement mechanism is something he believes the U.S. will really be able to “utilize in a fashion much more quickly than we had previously been able to use.” He added, “We will not hesitate to use enforcement tools we have in USMCA, if necessary.”

Other Trade Issues

Blake Hurst, president of Missouri Farm Bureau, introduced a panel discussion on trade issues saying, “With trade we always have issues.” He sees a change in Americans’ attitude toward trade, and thinks they may consider it not that important to the overall economy. He related a training and mentoring program with ten young, upcoming men and women managers working for several top tier agribusiness companies in Indiana. After an all-day session, he said he was surprised that none of them brought up the role of trade in the ag industry.

Panel participant Jim Sutter, CEO, U.S. Soybean Export Council, described soybean producers as “brilliant at what they do no matter what nature throws at them.” He was talking about COVID-19 as well as weather and climate incidents. “The world relies on [the U.S.] for soybean supplies,” he explained. “We use 40% of our crop at home and export 60%.” And 60% of those export shipments go to China.

China is buying U.S. soybeans at a record pace, Sutter said, but the total this year won’t beat previous record levels, and Chinese commitments under the Phase One deal won’t be realized this year. “As far as the actual trade goes, I think it’s unlikely that China will import half of the two-year commitment of the Phase One deal in the first year.” China committed to $80 billion of U.S. ag goods throughout 2020 and 2021. Sutter predicted China would import 36 million metric tons of U.S. soybeans this calendar year, roughly the same amount as the country imported in 2016.

In 1995, the U.S. was a net importer of pork. “Today, we export 30% of our pork products,” said Bill Even, CEO, National Pork Board. U.S. pork exports support 110,000 jobs. He commented that the U.S. pork industry has effective reciprocal trade agreements around the world, and its production efficiencies make U.S. pork least expensive globally.

Trending On The Farm

USDA Deputy Secretary Steve Censky told the Ag Outlook audience that support for farmers is strong at high levels of all government agencies and departments. But he mentioned that the USDA considers another round of Market Facilitation Program payments unnecessary, in light of additional coronavirus relief for producers coming in the next couple of months.

The MFP was created in 2018 and repeated in 2019 to compensate farmers for losses due to China’s retaliatory tariffs and other trade barriers. “We have our exports that have been growing, and we expect to see those continue to grow, and we see no need” for more MFP payments, Censky told Agri-Pulse at the Kansas City forum.

Federal Reserve Update

Kansas City Federal Reserve Bank president Esther George provided an optimistic assessment of the U.S. economy. But she had a cautionary message. The economy is working, she said. “The good news is the economic recovery is underway – quicker than I thought.” She credited the rebound to the general resiliency of the U.S. economy, the resolve of the American spirit and the fiscal stimulus programs. “The diversity of our economy has really come through,” said George. “Our economy is a microcosm of the thousands of industries in the country.” But, she warned: “We’re not out of the woods yet.”

Labor took a huge hit at the pandemic’s outset, losing 22 million jobs with lockdowns and shelter-in-place ordinances. George, however, pointed out that recent government statistics show that half of that furloughed demographic has returned to work, and the unemployment rate is 8.4%. She also described a new perspective catching on at the Fed: Unemployment can drop lower than expected without “necessarily” causing inflation.

George commented that the Fed has been proactive in addressing a bleak outlook for some community banks. The nation’s banking system is diverse with more than 10,000 banks, several thousand of which are categorized as small. “Policy makers must understand the dynamics of small banks.”

Land Values

Interest rates are a prime determinant of farmland since the early 1900s, said Steve Bruere, president, Peoples Company. The relationship between interest rates and farmland is inverse in that an increase in interest rates should pressure farmland prices lower, and alternatively, a decrease in interest rates should support higher land values. The current interest rate environment is much more favorable than that of a year ago and should cause the farmland market to trend higher. Bruere suggested there is a “huge demographic shift” in who is buying farm land, and outside capital is pouring in. “As farms get larger you need outside capital.”

Going Forward

USDA Chief Economist Rob Johansson told Agri-Pulse Communications, co-host of the Ag Outlook Forum, that the new round of coronavirus relief payments will help shore up farm income heading into 2021. He said about $6 billion in payments from the second round of the Coronavirus Food Assistance Program would reach farmers in the first part of 2021. Johansson forecasts higher revenue next year for livestock producers, but net farm income is expected to be down because of an overall decline in government payments.

Highlights of Johansson’s presentation are shown below. Detailed data and stats are available at the USDA Office of the Chief Economist: www.usda.gov/oce.

Outlook for U.S. Agriculture

Unprecedented shock to all economic sectors
IMF forecasts continue be revised downward
Agricultural commodities most closely linked to macroeconomic conditions have seen largest declines
Net cash farm income and net farm income are forecast to increase in 2020.
Net returns and government payments are forecast to increase, net crop insurance indemnities are anticipated to decline
Debt-to-asset ratio remains low --- 13.95%, and debt financing cost falling despite total debt at historic levels
Farm bankruptcy rates are slowly increasing
Record production projected in 2020 --- slightly lower
US beef production expected to slowdown in 2020 but pickup in 2021

American Farm Bureau Federation’s Chief Economist John Newton talked about the future of the farm safety net. The second round of the Coronavirus Food Assistance Program will provide additional much needed financial support for livestock producers, crop producers, specialty crops, as well as nursery, floriculture, specialty livestock, tobacco and several other commodity categories.

Some of the topics covered in his presentation are shown below. Detailed data and stats are available at www.fb.org/marketintel.

Future of Farm Safety Nets

2014: Move Toward Payments That Are a Function of Crop Prices in ARC-CO and PLC
Without Incentives: Cover Crop Acres Planted in 2020 Dropped to 2.3 Million Acres
U.S. Farm Income and Expenses
Can “Greening” Payments Make U.S. Agriculture Part of the Solution?
Net Farm Income with and without Federal Support
What Won’t Work Long-Term: Set Aside Programs

News

DIGGING DEEPER…….