Trade Remains Focus as Tariffs Take Toll on Agriculture

Trade tension impacts continue to mount in 2019 as higher and broader tariffs stifle demand for products around the world.
calendar icon 2 October 2019
clock icon 3 minute read

According to their quarterly rural economic industry update, CoBank says the Organisation for Economic Cooperation and Development in late September again trimmed its 2019 and 2020 outlooks for the global economy. It projects that the world economy will grow 2.9% this year – the slowest pace since 2009, and a steep decline from 3.6% growth in 2018. Slowing of China’s economy and the ripple effects in Asia and Europe are largely to blame.

Trade talks between the U.S. and China continue, but negotiators remain far apart on key issues. The US and Japan have negotiated a deal that would improve US competitiveness relative to that of countries in the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP), renamed from Trans-Pacific Partnership (TPP) after the US left the pact. 

Negotiations with the EU are also ongoing. Limited progress has been reported on both fronts. It is also becoming increasingly unlikely that the United States-Mexico-Canada Agreement (USMCA) will come up for a vote in Congress before the 2020 election.

Key Points

  • Trade tensions continue to mount as global economic growth slows. The U.S. economy remains on much better footing, largely due to solid wage growth and consumer spending.
  • Soybean prices surged late last quarter based on fears of delayed maturity of the U.S. soybean crop and hopes of resuming China market access. Ethanol producers are dialing back production after contending with negative margins, trade issues, blending waivers, and volatile corn prices.
  • Cool spring weather lifted livestock weights, driving increased protein supplies this summer. Trade volume is expanding and U.S. meat and poultry producers will soon see the benefits. Dairy cow numbers are down 82,000 head year-over-year, weighing on total U.S. milk production.
  • Foreign buyers are defaulting on cotton contracts after prices dropped significantly in recent months. Rice prices have surged in the last quarter and shipments to Mexico alone are up 45% so far in the marketing year.
  • Total shipments for the 2018-19 almond crop year finished strong despite the trade headwinds, bringing ending stocks to their lowest level since 2012. Prices  for process oranges and wine grapes are expected to be soft over the next quarter due to increased production, weak domestic demand, and ongoing trade issues.
  • Moderate natural gas prices are likely to put downward pressure on power prices nationally while driving the continued retirement of less-efficient generating capacity.
  • With most large fiber optic transport companies already acquired, institutional investors are eyeing fiber-rich rural operators as their next targets.

Executive Summary

Trade negotiation breakthroughs with China remain elusive, and the U.S. agricultural sector is preparing for its second harvest under the shadow of hefty tariffs. Lower feed prices, however, are aiding animal protein and dairy margins.

The global economy is also straining under the weight of trade disruptions as business investment and manufacturing slow around the globe. The U.S. economy remains the best house in an increasingly troubled neighborhood as the domestic consumer spends on.

Further Reading

You can view the full CoBank Quarterly US Rural Economic report by clicking here.

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