So, US farmers are feeling the pinch of the ongoing China trade wars with the later imposing tariffs on many agricultural goods including Soybeans, Corn (Maize), dairy and beef products. China did buy 50%+ of the US Soybean crop, however as a result of the tariffs-imposed US export revenue fell 74%. With the Brazilian’s currently fulfilling the gap the US Soybean stockpiles grow.
Trump has now eroded the growth since his succession to office and it appears, he is beginning to lose faith of some of his staunch trade war supporters. Farmer polls since March show a 12% decline to 65% for a positive outcome of the China trade wars.
Grain prices have been falling for the past 5 years and farm incomes have halved since the peak of 2013. Naturally you would expect this to influence land price although contrary to this, land is continuing to be sold at US$ 4,500/acre (equ. £3,540/acre; 10am, 5th June 2019), and farm equity has only reduced 5%. Farm debt across the US has risen to $427bn. Banks still view US Agriculture as safe despite a record defaulting of farm loans. As you can see from the diagram above both real and non-real estate debt is approaching the 1980’s crisis peak, is this about to happen again?
Should a collapse occur the US Federal Government and taxpayer would be left to foot the bill as per the 1980s collapse. 45% of debt is supported directly by the Government (40% FCS, 5% FSA & Farmer Mac). Whilst Commercial banks (40%) and Other (15%) makeup the remainder.
The diagram to the right depicts annual return over past 14 years with depreciation seen over past 5 years and about an 11% reduction in annual returns.
Reasons for high land value against returns;
1. Government Intervention
• Donald Trump supports assets
• Initial $12bn Bailout followed by a further $16bn Bailout.
2. Lack of Land
3. Diversify Portfolios
• 50% of Minnesota Auction were non farmer investors = Land is seen as Safe (virtually risk-free returns)
One thing is for certain US farm balance sheets will be tested as the trade war continues especially as the outlet for Soybeans and Corn based ethanol reduces. Without a rally in commodity prices lower land values are expected, the federal capital reserves are in the red already so can Trump afford anymore bailouts???
Contact Wesley at email@example.com or your local FCG Office.