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By Staff | Jan 18, 2018

My assessment of the economic impact on the ag sector has been that the Trump administration would make us millions but cost us billions if the policies he has exposed were implemented. I still stand by that. The savings will be in regulatory policy and some tax savings. USDA was bragging about reducing bureaucracy $56 million, which is an effort going on throughout the government. I am still trying to quantitate for example, how ending WOTUS puts a dollar in my pocket but I suppose it saves someone some money. My mud puddles are well drained. There are direct and indirect costs to regulation but in some instances the savings claimed were on regulations that didn’t actually exist and likely never would have, such as taxing cow flatulence.

The tax savings is real as long as you have an income. No-one is making any money growing wheat and corn/soybean margins are flat near break-evens. It takes an exceptional yield or lower land costs to make money. Those that own land are making their profit from return on equity rather than return on operations. I should be ecstatic over the GOP tax cut, but net farm income is not what it was to be able to take advantage of the meat of it. Yeah, you can write off equipment if you have the money to buy it or margins to make the payments. Many who purchased equipment for tax purposes when farm income was high are struggling to make the payments now.

Livestock producers had a good year in 2017 but producers do not own many hogs or chickens. . . the integrators do. I am glad that they are making money because they buy my corn and soybeans but they are also most at risk to a disruption of current trade agreements. Ranchers and feedlots own the cattle so those profits went to good homes this year. The tax bill doesn’t apply to this year’s income so we hope that the profitability extends into next year and beyond but would not hold our breath. Overall tax rates decline 5-10 percent and farmers did not lose too many deductions as property taxes are treated as a business expense.

Ag markets are highly dependent on exports and FTAs have opened market access for U.S. products overseas for which U.S. farmers have taken advantage of. The current expansion of several new processing plants and the sow herd was predicated on the expectation that pork exports would continue to find demand in Mexico and Asia. First TPP was nixed and every major pork buyer the U.S. has is in the Trump administration’s sights for redoing our trade relationship. Donald has been busy with other things and they have been getting the administration’s trade team put in place, but they will be ready to delve into their “America First” trade agenda much more heavily this year. They know that NAFTA is important to the ag sector but hold their larger trade agenda dear and have no intention of waiving their planned trade offensive because of what impact it might have on the ag sector. USDA now warns that the ag sector needs to prepare contingencies for the possibility that NAFTA will get cancelled. Commerce Secretary Wilbur Ross has rebuffed the ag sector concerns.

NAFTA is up first in the schedule of trade agreements the Trump administration has vowed to tackle. They are also renegotiating KORUS. Japan is talking to them. Only the impasse and need of China’s help with North Korea is putting off a trade confrontation between Trump and China. There is no way that given the big picture that the Trump administration will settle for a tweak of NAFTA, setting that as the example of what they intend to change and implement in new U.S. trade policy. They have been making demands in NAFTA that most do not see Canada or Mexico conceding to. The Trump administration has vowed to rebalance our trade agreements keeping score with trade deficits. The odds of a major disheveling of the current trade system in the process of defining an “America First” trade policy are very high. That is where the billions in potential losses in revenue come into play.

IA Senator Chuck Grassley reported hearing rumors that “people in the bureaucracy are trying to anticipate – if that’s a possibility, what are we going to do to protect small farmers from drops in prices? There is some talk about putting together a pot of money so you could support prices that fall apart because we pullout of NAFTA.” In other words, the decision to cancel NAFTA has already been made within the administration and they are already thinking about what they can do to contain and mitigate the financial fallout from devastating the ag sector.

If they are going to pursue trade policy that costs the ag sector billions, the millions saved from deregulation becomes chump change, the tax cuts are useless when ag income become losses and farm subsidies become disaster payments after destroying exports that we depend on for our livelihood.

ImpactECON says that canceling NAFTA would cost the ag sector $3 billion but that is just a down payment for what trade disruptions with Korea, Japan and China would cost the ag sector. NAFTA is just first with the rest following. It is not just the short term financial hit that would be taken, as for a few decades now U.S. ag has predicated its growth on expanding global market access. We are talking tens of billions short term and use your imagination for the cost long term. The Trump trade philosophy is part of the consuming economy that likes cheap steak. They may save us millions in regulatory savings but at the cost of billions if they implement their trade policy as threatened.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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