Maybe it is the crop reports, maybe it is the impact of retaliatory tariffs, but a cold chill of economic foreboding has begun moving through farm country during the boiling hot summer months.
“It’s a big topic,” said Purdue University Agricultural Economist Chris Hurt. “The big hit for Indiana appears to be a 25 percent tariff on soybeans issued by China.”
Experts say it is hard to give an exact figure to the impact tariffs are having. That is because the markets are also reflecting what has been nearly ideal growing conditions in the midwest. Weather markets are the first thing to drive down prices because it means there will be plenty of supply. The Chinese tariffs though have shown that the demand is also expected to fall.
Hurt points out that since June 1, soybean prices have tumbled for new crop beans. “This month soybean prices are down a $1.50 and corn is down 45 cents,” he explained. “At Purdue, we estimate that drop on a farm that has 1,000 acres of corn and 1,000 acres of beans to leave the farmer bringing in $160,000 less.”
Cannelburg farmer John Pat Hart farms 2,000 acres in Daviess and Martin counties. His fields are a little heavier toward corn (1,300 acres) and he has 165 acres of milo, but the drop in soybean prices is a concern.
“I really had not dwelt on that drop,” said Hart. “I know we’ve lost a lot of the price on beans. I sold a lot of my crop early before this began, so I am in decent shape. I still have some more I’ll have to sell. I just hope it can recover.”
Unlike the weather, tariffs are the result of political decisions. As President Trump has put tariffs on everything from steel to electronics on American trade partners those partners have retaliated with tariffs of their own. The 25 percent on American soybeans by the Chinese will raise the price of $9 bushel of beans to $12. Other countries can fill that need and that leaves a glut of soybeans.
Not only that but EPA has pulled back on requirements for gasoline manufacturers to use ethanol. “This is all a combination of trade, weather, tariffs and ethanol decisions,” said Hurt.
The lowered prices have both beans and corn hovering around or below what farm experts call the break-even point. Purdue University estimates that a corn farmer bringing in $4 per bushel can make a living, and soybean farmer needs $10 per bushel to get a reasonable return. With beans selling at $8.50 and corn at $3.40 there could be trouble for some farmers.
“This is going to result in a deterioration of wealth for farm families,” said Hurt. “I anticipate some will have cash flow problems. Some will have to borrow more money to put out next year’s crop and they will see a decline in their net worth. That will also lead to an accelerated reduction in land values.”
Ronald Burris who has a small farm in Daviess County does not like the numbers as they are changing. “The value of the crop is taking a beating,” said Burris. “There could be some trying times this fall. I’m glad I don’t have a lot of debt.”
There are some who believe this may just be bluster for negotiation purposes.
“We’ve seen the President talk about how his button is bigger than North Korea’s and the next thing you know he is sitting down and talking with the head of North Korea,” said Hurt. “A settlement is always possible but every day this goes on the more farmers in Indiana get concerned and once tariffs go on they can be difficult to remove.”
A trade war stands to truly injure Hoosier farmers who last year exported $4 million in corn and $26 million in soybeans to China. In addition, Indiana exported $30 million in pork products to Mexico. But farmers won’t be the only ones feeling the impact.
“This decline of $14 billion on the national crop, our rural communities will feel that,” said Hurt. “It goes down that much it is going to be a shock throughout rural Indiana.”
From 2014-2017 Indiana was the sixth largest soybean producer in the nation. During that time farmers produced almost 290 million bushels of beans.
Grain farmers in Daviess County last year planted 84,000 acres of corn producing 15.7 million bushels and 64,300 acres of soybeans producing 3.7 million bushels. If farmers receive 45 cents less for corn and $1.50 less for beans the hit on the farm economy will be sizable. It could total more than a $12 million drop in farm income in the county.
“Then there’s the multiplier effect,” said Hurt. “We normally estimate that whatever a farmer makes will roll over in the community three to five times. It will impact anyone the farmer and his family does business with and anyone that does business with that business.”
“This has the potential to be very damaging to our local economy,” said Executive Director for the Daviess County Economic Development Corporation Ron Arnold. “We will have to see how this all plays out.”
Hurt says that the Chinese tariffs on beans have already done their damage.
“The worst could still be yet to come,” he adds. “Farmers went heavier on soybeans this year and China will not be buying many U.S. soybeans. Of course, I am an economist and that means, on the other hand, the weather could change in the rest of the Midwest and the tariff issues could get settled and everything will get fixed. Or maybe it won’t.”
It is that optimistic scenario that keeps farmers looking for a ray of hope in a cloudy outlook.
“Our crops look really good in Daviess and Martin Counties,” said Hart. “This is all pretty frustrating but you kind of see everything when you are farming. We can just hope that prices recover and get us back to profitable levels.”
Impact of retaliatory tariffs *
Total impact on potential U.S. exports $75 billion
One half of all manufacturing jobs in U.S. are producing for export
One in every three acres of farmland planted in U.S. is for international sale
Impact on Indiana $1 billion
$648 million in exports to Canada$151 million in exports to Mexico
$130 million in exports to China
$75 million in exports to Europe
812,600 Indiana jobs supported by global trade
*According to U.S. Chamber of Commerce