U.S. Trade Policy and its Impact on the Agricultural Sector Ian Sheldon Department of Agricultural, Environmental, and Development Economics Portage SWCD, Ravenna, OH, September 13, 2018
What is Driving U.S. Trade Policy? • Members of Administration have expressed view international trade is a zero-sum game • Form of 21 st Century mercantilism - i.e., imports are bad and exports are good • Implies no net benefits from open trading system • U.S. trade deficit seen as evidence that U.S. is losing and other countries must be winning • View that reducing U.S. trade deficit will promote economic growth
Key Trade Policy Actions • Trans-Pacific Partnership (TPP) not ratified • Renegotiation of NAFTA • Implementation of tariffs on steel and aluminum imports on grounds of national security • Allies (Canada/EU/Mexico) not given exemptions on steel and aluminum tariffs – retaliation • Steady escalation of trade war with China • Suggestion U.S. could leave WTO
Agriculture Caught in Crossfire……..
U.S. Corn vs. Soybean Use Percentages of U.S. Corn Use Top Five Markets for U.S. Corn 15% 1. Mexico Feed and Residual 2. Japan 37% 3. Colombia Food, Seed, and Industry 4. South Korea Ethanol 5. Peru Exports 38% 10% Data: World Outlook Board Top Five Markets for U.S. Soybeans Percentages of U.S. Soybean Use 3% 1. China 2. Mexico Biodiesel, Food, and 3. Japan Feed 47% 4. Indonesia Exports 5. Netherlands 50% Seed and Residual Data: World Outlook Board
Chinese Soybean Consumption and Imports Chinese Consumption of Soybeans Chinese Consumption of 140 Soybeans continues to 120 Million Metric ton 100 increase 80 Mostly for feedstock to 60 40 pork production 20 Some for soybean oil - Marketing Year Chinese Soybean Imports 100 Since 2012, Brazil has 90 80 Million Metric Tons been the second 70 60 45.3 largest supplier of 50 soybeans to China 40 30 Partially due to 20 36.8 10 the drought of 0 2012 United States Brazil Argentina Others Data: World Trade Atlas
How dependent are we?- Soybeans U.S. Soybean Export Portfolio: U.S. Soybean Export Portfolio: Average Annual Percentages 2003-2007 Average Annual Percentages 1998-2002 18% 38% 39% 14% 54% 13% 11% 13% China Mexico Japan ROW China Mexico Japan ROW U.S. Soybean Export Portfolio: U.S. Soybean Export Portfolio: Average Annual Percentages 2013-2017 Average Annual Percentages 2008-2012 29% 27% 59% 61% 7% 8% 5% 4% China Mexico Japan ROW China Mexico Japan ROW Data Source: USDA-FAS; author calculation
Total Agricultural Trade- Ohio Ohio Agricultural Exports by Destination Country $1,500 Canada Remains our largest Value in Million U.S. Dollars consumer $1,000 China becomes our second $500 largest NAFTA makes up $- 49% of Ohio’s agricultural trade Brazil Canada China Japan Mexico European Union Data: U.S. Census Bureau
Ohio Agricultural Trade to Just China Ohio Agricultural Exports to China Soybeans are the predominant $4,000 $1,400,000 agricultural export $3,500 $1,200,000 1,000 (USD) Corn & Pork to China $3,000 1,000 (USD) Soybeans) $1,000,000 $2,500 High corn $800,000 $2,000 processing and $600,000 trade with Mexico $1,500 $400,000 limit quantity $1,000 available for trade $200,000 $500 to China $0 $0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Mexico also Data: U.S. Census Bureau Corn Pork Soybeans consumes most of our pork
Can World Soybeans just be Reallocated? 2017/18 Trade (Million Metric Tons) China accounts for 63% of world soybean trade China’s Soybean Imports 96 All Other Countries Imports 57 Mathematically if China sources all their soybeans from Non-U.S. suppliers and U.S. backfills, there would be little world U.S. Soybean Exports 57 trade change Non-U.S. Soybean Exports 95 Brazil Exports 75 In the short-run this is almost impossible and local prices in Other Soy Exporters 20 Brazil, China and U.S. will adjust Data Source: WASDE August Update
Change in Chinese Producer/ Consumer Behavior While the production and import changes from 2017 are small, what is the potential in future years? Chinese Soybean Behavior (Million Metric Tons) All else equal, we can 2017/18 2018/19 % Δ expect U.S. crush to increase and Chinese Production 14.2 14.5 2% crush to decrease Imports 96.0 95.0 -1% Will China change their Ending Stocks 23.5 20.78 -12% production policies? Away from subsidies for corn and wheat to soybean production Data Source: WASDE August Update
U.S. Weekly Soybean Exports Weekly Soybean Exports USDA increased their 3,500,000 2017/18 export Metric Tons/ Week 3,000,000 number 25 mil. bu. in 2,500,000 August to 2,110 mil. 2,000,000 bu. 1,500,000 Need to average 1,000,000 26.5 mil bu./ week 500,000 Last few weeks: 0 20.3 mil bu. Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Outstanding sales for 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 down 30% Emerging Markets- Volume (Percentage Change from 2016/17) from this point last Egypt: +1.6 million metric tons (213%) year Pakistan: +877,395 metric tons (148%) Mexico: +430,986 metric tons (12%) Netherlands: +505,878 metric tons (26%) Data Source: USDA-FAS
Price and Supply Shocks from Tariffs Table 1. Changes in Bilateral Trade of Soybeans Due to 25% Chinese Tariff on U.S. Soybeans (%) Importers European Rest of the Exporters Union China World Global United States 13.2 -47.7 15.3 -24.1 Case 1: Standard Brazil -16.9 18 -13.1 14.7 GTAP trade Rest of South America -14 22.4 -9.9 15.8 elasticities Global 7.5 -5.3 4.7 -2.5 European Rest of the Exporters Union China World Global United States 38.6 -90.6 64.1 -34.2 Case 2: Elevated Brazil -80 36.1 -73.3 24.8 trade elasticities for Rest of South America -76.6 62.3 -64.2 36.6 soybeans Global 15.3 -5.3 13.4 -0.2 Source: GTAP- Purdue University Price Changes: Soybeans Decrease of 3.8% and 4.9% Corn Decrease of 1.1% and 1.6%
Soybean Export Spot Prices $13.00 $12.50 $12.00 $11.50 $11.00 USD/bushel $10.50 $10.19 $10.00 $9.50 $9.00 $8.50 $8.50 $8.00 04/01/2016 09/28/2016 03/30/2017 09/28/2017 04/04/2018 Paranagua (BR) Price U.S. Golf Price Data Source: Cepea and USDA-Agricultural Marketing Service
Impact on Agriculture • Farmers facing increased uncertainty • Potential for significant reduction in farm incomes • Potential for lost market share
Corn and Soybean Prices: Trade Timeline Mexico Implements U.S. announces U.S. announces U.S. Announces Tariffs on U.S. goods U.S. Implements aluminum and tariffs of additional Import Tariffs of $50 Steel and Aluminum steel import tariffs Mexican Tariffs go $200 B B Chinese Goods Tariffs on Allies into effect $4.20 $11.00 $10.50 $4.00 $10.00 $3.80 Soybean Price ($/Bushel) Corn Price ($/Bushel) $9.50 $3.60 $9.00 $8.50 $3.40 $8.00 $3.20 $7.50 $3.00 $7.00 3/1/2018 4/1/2018 5/1/2018 6/1/2018 7/1/2018 8/1/2018 Corn Soybean China Implements U.S. and China add Tariffs on $38 B Tariffs on $34 B each (including pork) U.S. announces $12 China Proposes U.S. and China add aid package Tariffs on Additional Tariffs on $50 B each $50 B U.S. Products Source: USDA- Agricultural Marketing Service Daily Prices for Cincinnati, Ohio through September 5, 2018
Representative Ohio Grain Farm 1,100 acre farm (550 corn and 550 soybeans) Trend yields of 154 bu./acre corn and 49 bu./acre soybeans 30% of land is owned (cash rent payment of 183/acre) 40% debt on all capital Marketing Year 2018 2019 2020 2021 2022 2023 2024 Baseline $3.65 $3.82 $3.81 $3.80 $3.76 $3.70 $3.68 Corn $9.38 $9.75 $9.81 $9.75 $9.63 $9.51 $9.53 Soybeans Chinese Tariff- Low Elasticity $3.61 $3.68 $3.67 $3.66 $3.62 $3.58 $3.56 Corn $9.03 $9.17 $9.23 $9.17 $9.05 $8.93 $8.95 Soybean Chinese Tariff- High Elasticity Corn $3.59 $3.70 $3.69 $3.68 $3.64 $3.60 $3.58 Soybean $8.92 $9.05 $9.11 $9.05 $8.93 $8.81 $8.83
Impact Analysis- Ohio Representative Farms • The idea is to have representative farms of different sizes and operational design throughout the state to do Impact Analysis Estimated Net Income per Year 2018 2019 2020 2021 2022 2023 2024 Average Baseline $56,810 $63,423 $68,241 $69,236 $65,483 $59,728 $62,115 $63,577 Chinese Tariff - Low Elasticity $42,711 $32,751 $37,286 $37,998 $33,998 $29,779 $31,902 $35,199 Chinese Tariff- Average $39,963 $22,841 $27,281 $27,897 $23,766 $19,486 $21,513 $26,107 Chinese Tariff- High elasticity $37,216 $12,931 $17,275 $17,796 $13,569 $9,194 $11,125 $17,015 Reduction in 59% of farm income over projection period
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