Report points to ‘difficult and worrying’ 2019 for US agriculture
- Market volatility caused by extreme weather, the trade war and the potential spread of African Swine Fever may hurt food commodity prices, says Rabobank
This story is published in a content partnership with POLITICO. It was originally reported by Sarah Zimmerman on politico.com on November 15, 2018.
Market volatility caused by US President Donald Trump’s trade disputes, extreme weather and the potential spread of African Swine Fever could threaten the stability of global food commodity prices next year, the agricultural banking company Rabobank warned Thursday in a new report.
“The agri-commodity price environment may be relatively stable currently, but it’s difficult to remember a time [when] there were so many threats to food commodity prices on so many fronts,” Stefan Vogel, Rabobank’s head of agricultural commodity markets and a co-author of the report, said in a statement.
In Rabobank’s annual Outlook report, the Holland-based company predicted that trade uncertainty remains the largest threat facing US farmers next year. The downward trend of US farmers’ profitability will only get worse if China continues to ignore American agricultural imports, the report said.
Fiscal 2018 marked the second-worst profitability year for American farmers in nearly the last decade, the report said, despite record-smashing corn and soybean yields and the fact that Chinese retaliatory tariffs only directly affected one-quarter of the 12-month period.
Rabobank anticipates that American soybean farmers will continue to take the biggest hit if Beijing keeps its tariffs in place – and that US soybean stocks “will easily double” under that scenario. USDA Secretary Sonny Perdue has said that farmers will not receive additional trade aid for 2019 production, reasoning that Trump’s tariff policies have already altered markets and that farmers must now react accordingly.
In many cases, that may be easier said than done. “These measures,” the report said, referring to tit-for-tat tariffs, “change the structure of global trade and increase US inventories to new all-time highs, while hurting US farmer margins, and resulting in great uncertainty when it comes to prices and the upcoming 2019 planting season.”
Agricultural producers should prepare for other factors beyond trade, according to the report. If African Swine Fever, which has cropped up in places in China’s massive pork industry, spreads to become a full-on outbreak, consumer concern could lead to shifts in preferences, in turn affecting global trade flows.
In addition, the report noted that climate experts are forecasting an 80 per cent chance of El Niño weather conditions being formally declared “by the end of the northern winter.” El Niño-related weather patterns tend to make the US Southern Plains wetter and can also lead to drier conditions in the northern part of the US Midwest.
With El Niño-like effects already being experienced in parts of Australia, Brazil and India, the report said, further weather change holds the potential to hurt crop yields and production, and influence global trade in agricultural commodities.
“Food producers face a melting pot of risks,” Justin Sherrard, a global strategist for animal protein at Rabobank, said in a statement. “Although it’s possible that not all of them will come to pass, they need to be prepared for a difficult and worrying year in 2019.”
The report predicted a hefty surplus in US soybeans next year and a global glut in coffee and, less significantly, in palm oil and sugar. It forecast global deficits in corn, wheat, cocoa and cotton, noting that hurricane-related damage affected the US cotton crop this year.
With Trump expected to talk trade with Chinese President Xi Jinping at the end of the month, the report was not overly pessimistic about the possibility that the two economic superpowers could strike a deal to ease trade tension.
The report said it “may take very long negotiations” to address America's trade deficit with China “by any significant amount.” However, Rabobank said it was “surprising” how quickly the new North American trade agreement came together and that “we can’t rule out a speedy resolution to the US-China trade war.”
“Once achieved,” the report said of a US-China trade deal, “it will likely result in China buying increasing quantities of American goods. Under a Chinese tariff regime, however, the US will easily double its soybean stocks.”