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How tariffs are affecting agriculture

Dr. Gary Schnitkey, the speaker at the Chicago Farmers’ September 10^th meeting, opened his presentation with positive news for a large audience: 2018 will be a good year; yields will be high and incomes will be higher, too. Dr. Schnitkey, professor at the University of Illinois at Urbana-Champaign’s College of Agricultural and Consumer Economics, has opened a number of the Chicago Farmers’ new seasons with presentations on trends in agriculture. These meetings always draw a large attendance and this September meeting was no exception.

While Dr. Schnitkey led off with good news about 2018, he said that 2019 probably would not fare as well due to the tariff proposals. “Next year is a year of concern because people are uncertain about what the trade dispute will do to prices,” said Dr. Schnitkey. “If you are a landowner, you will have to have tougher discussions with your renters.”

Dr. Schnitkey said that in 2018, corn fetched $4.00 a bushel and soybeans fetched $9.50 a bushel, “Prices fell after May due to the trade discussions so don’t budget these prices for 2019,” he said. “We are predicting corn could be at $3.50 per bushel and soybeans could be $9 per bushel. The trade dispute has dashed people’s hopes for higher prices. Until there is more clarity or a resolution to the trade dispute, these are the prices that we project to be in place.”

Soybeans have been at the $9.75 level since 2014, but trade discussions began in May and prices dipped. Dr. Schnitkey related that on Friday, September 7, the bushel price for soybeans in Decatur was $7.94. “We can expect a range between $7.94 and $8.20 for soybeans and just below $4 for corn throughout the harvest period. I suggest you build your expectations at these prices for next year.”

Dr. Schnitkey pointed out that there would have been price declines even without the trade issue due to high yields, but the trade talks have taken another $0.80 to $0.90 off the price of soybeans.

Additionally, corn prices are expected to fall going into 2019. Corn will look more profitable than soybeans and, as a result, farmers are switching from soybean crops to corn crops, which will depress corn prices. Dr. Schnitkey noted that western states are switching to wheat from soybeans. “The downward trend of soybeans will affect other crops. The trade dispute will have a long-term impact on prices just by being there,” he said.

In discussing yields, Dr. Schnitkey said that since 2014 soybeans and corn have produced above average amounts in Illinois. “A plateau was created, but that does not mean that those yields will always be there.”

Regarding cash rents, Dr. Schnitkey said that reports prior to the trade discussions indicated that 2018 cash rents experienced about a $5 increase. “Where it goes in 2019 is a big question,” he said. “Land values are holding relatively well and major declines are not projected. They are not making any more farmland and that is a motive to hold assets; however, we could see declines if the trade dispute continues. Landowners might want to consider using flexible or variable cash rents going forward.”

In response to an audience member’s question about lenders’ attitudes during this period, Dr. Schnitkey said that lenders have watched working capital decline on farms and it is possible they will become more proactive. He said lenders want to see a positive cash flow. “If a farmer has carry-over debt, the lender expects that farmer to sell assets to wipe out the debt.”