No secret: Ag profits declining

What do international trade and agriculture have in common?

It is an easy answer: They are intricately intertwined with the other. Today, it is crucial that no harm is done to either one.

I begin with agriculture. It is no secret in a farming community such as Hills­boro and surrounding communities, agriculture is in a financial slump. Prices have been declining significantly since 2014, and this is having a detrimental effect on the financial health of many farms.

The latest information gleaned from the attached chart produced by the USDA and CoBank indicates a steep rise in the debt to income ratio of all farms in the U.S., suggesting farmers are having to rely on credit to overcome cash flow deficits.

In 2004, the ratio stood at just over 2.0, the lowest level since 1972. Between that period and 2013, it varied from just above that level to slightly over 4.0. It has steadily risen since then with 2016 numbers ending at 6.15.

One can only make a guess where 2017s numbers will be. It may be somewhere between 6.5 and 7.5, or higher. That said, farm crisis and suicide prevention hotlines are once again gearing up in farm states like Minnesota and elsewhere. Though these numbers are not as high as those attained during the 1980s farm crisis (13.0), it bears watching.

Not every farm is experiencing a financial crisis, due to differing circumstances. However, these indicators are a stark reminder that economic cycles—even in agriculture—are real. Rarely do we reach a “new plateau” where prices never decline below profitable levels.

International trade. Global trade is vitally important to American agriculture. Thanks to USDA and CoBank, we have more numbers to show. Pre-NAFTA exports to these countries were a mere $8.4 billion (1990-94 averages). Currently, 2012-16 averages are $39.4 billion. Another USDA-FAS report pegs current numbers at slightly over $42.5 billion for 2016.

Of that total, 2017 wheat exports to Mexico increased by over 40 percent from 2016 levels, much of that increase coming from Kansas.

Cancelling NAFTA would not only be detrimental to agriculture, it would place much of the region in a precarious financial position we have not seen since the 1980s.

By cancelling future trade talks with the Trans-Pacific Partners, Mr. Trump has put future prosperity of agriculture out of reach. The agreement’s plan was to eventually reduce all tariffs to nearly zero, granting each partner access to markets.

It is now one year into his term, and we are still waiting. Though Mr. Trump promised to replace the TPP agreement with unilateral trade agreements with each country, our president has failed to complete even one agreement, much less 11.

The old TPP agreement has been renamed “The Comprehensive and Progres­sive Agreement for the Trans-Pacific Partnership,” or CPTPP, and Japan is the current leader taking over our former role. They expect talks to be completed by the end of March of this year.

Meanwhile, China has moved in and is quickly becoming a dominant player, working on trade pacts with Pacific Rim nations and elsewhere. Canada and Mexico are also completing trade agreements with our customers.

The European Union is also moving aggressively to complete agreements with our customers as well. All of these will effectively place American exports in a competitive disadvantage with higher tariffs than our competitors.

In an article published by Politico one year ago, author Edward Alden, senior fellow at the Council of Foreign Relations, writes, “Trump’s promise is that better, fairer trade deals will bring more jobs and opportunities home for U.S. workers. Done cleverly and diplomatically, his approach could be a long-overdue correction for trade and economic policies that have left too many Americans behind. Done crudely, it could drive the world back into the damaging trade wars of the 1930s, leaving Americans and the world much worse off.”

Today, we have the luxury of limited hindsight—with the help of media sources like Politico and others—to remind us where we have been and where we are headed. I am not convinced we are headed in the right direction.

Currently, the only blood-letting by Americans in a trade war will come at agriculture’s expense, negatively impacting our nation’s farmers and their ability to compete in a global marketplace. No other sector will come close to suffering as much.

We cannot allow this to happen. It represents a clear and present danger to agriculture’s financial security.

Paul Penner farms in the Hillsboro area. He has been active statewide and nationally regarding agriculture policy.Penner-graph

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