Fate of the (agriculture) Union under Trump

I think trade deals are a tough row to hoe with the new administration, the dollar will be strong, ag exports will be constrained by both trade and monetary policy.

Joseph Kerns

November 15, 2016

8 Min Read
Fate of the (agriculture) Union under Trump
<p>Trade deals may be a tough row to hoe with the new administration, the dollar will be strong, and ag exports will be constrained by both trade and monetary policy. </p>

Author’s note: In the wake of the election, the author of this article — a Trump supporter, a fact pictorially expressed by the attached photo from the recent Des Moines half-marathon (that's me on the right), but not readily evidenced as you read the verbiage — took a shot of projecting what policy changes the new administration may have in store for agriculture. The premise of the items addressed are taken from Mr. Trump’s declaration of what the first 100 days of his presidency may look like and I am taking some literary license to posit what may result from his presidency.

Attached is the script (stolen by WikiLeaks from the Teleprompter) of President Trump’s address to a crowded National Pork Producer Council gathering some time in early 2017. He is in the state to announce the appointment of his new Secretary of Agriculture, an Iowan with business acumen …

Ladies and Gentlemen, it may be a surprise to you that I won the recent election and am standing here before you today as president of the United States. Quite frankly, I was a bit surprised myself. It is sometimes too easy to get caught up in the polling data and the pop wisdom of the day and miss the changes taking place out of sight. Just as your hog market was not reflecting the expected bearish fundamentals during the first portion of November 2016, my campaign defied conventional logic until voters went to the polls. Some of you trusted your gut and acted on it, others watched as your worldview was upended.

Now that the protests have died down a bit, I want to address some of my policies and how we can continue to work together to make America great again.

First, thank you, rural America, for helping put me in the White House. It was your staunch support in this process that laid the foundation for victory. You sent an outsider to Washington to institute real change and I am delivering on that request. Make no mistake — there have been and will continue to be individual winners and losers as change happens, but America as a whole has and will benefit from my leadership.

I want to address things that are important to you in the agricultural sector. I am not going to talk today about the repeal of Obamacare or congressional term limits. Instead, we are going to focus on the direct impact to you in America’s heartland.

The wall separating the United States from Mexico is complete, even if it is a virtual wall. I was inspired by the stir that the Pokemon Go craze created and decided a cyber wall was better than a concrete version. The practical application of building an actual wall and deporting several million people from the United States was nearly impossible from a physical and logistical standpoint. I promised a pathway to citizenship and we will continue to work on those details. The sabre rattling from my campaign was enough to largely achieve my objectives, anyway, as an estimated 3 million people have left the United States and have presumably returned to their home countries. From the day of my election until my inauguration, anyone — regardless of their legal status — had the opportunity to assess their future and either remain in this country or travel elsewhere. This has caused a bit of strife to agriculture and I understand your hardships. California was the hardest hit with several tons of produce rotting in the fields on account of no labor to harvest the bounty. That did not look so good on CNBC.

The packing industry has experienced a significant labor transition, too, and I understand that your hog production units have been negatively squeezed with the reduced labor force. The lack of trained workers available to the packing industry between Thanksgiving and Christmas really reduced processing schedules and backed up animals in the country. Prices plummeted as a result and pork producers hit some really hard times. The labor situation on your individual farms was compressed, too. Finding competent help in the fly-over states does not come easy. Or cheap. This whole minimum wage debate became nebulous when you had no choice if you wanted labor. Pay up or do without. I suspect this has spurred on further technological advances at the barn level and tightened up some of your systems, even if it did come at an unanticipated cost during a period marked by negative cash flow on your operations. This one had to hurt.

As promised, on my first day in office I declared China to be a currency manipulator. The one bright spot in our balance of trade with China, agriculture, took the biggest hit. China may still reluctantly buy our soybeans when South American supplies run out, but they have found they can do just fine without U.S. pork hitting their shores. The increased value of the U.S. dollar has made European pork much more attractive from a pricing standpoint before we even talk about Sino-American relationship struggles. They would probably prefer European Union pork at even money to the U.S., just to prove a point. My “America First” agenda has had a negative impact on trade, agriculture is dependent on exports. Sorry about this one, guys.

The Trans-Pacific Partnership was dead before I got here. You can’t blame that one on me. Of course, I did nothing at all to help revive it. Instead, I kicked it to the curb. You can blame me for the North American Free Trade Agreement rift. Yes, I alienated the Chinese with the currency thing and the Japanese with the TPP thing, might as well have the trifecta and jab Mexico in the ribs by renegotiating NAFTA. All this was done for the good of the country. The non-ag sectors are booming. Take a look at the stock market, now well above 20,000. The ag sector may be struggling, but it was for a greater good. We are making America great again, perhaps at the expense of agriculture.

Sorry about that eminent domain thing if it cut through your farm ground. We need the Keystone Pipeline to be completely energy independent and I approved its construction with the blessing of both houses of Congress. Construction should be complete in 2019.

On a brighter note, the Environmental Protection Agency is largely off your back and those onerous Dodd-Frank requirements have been eliminated. Waters of the U.S. has been repealed, the death tax has been eliminated which will allow you to pass whatever assets you have left to your heirs without them having to sell the farm to pay the taxes. I have appointed another Iowan to be my Secretary of Agriculture; this one should do better than the previous effort.

You may be surprised to have me as your president, but you should have seen this one coming. My occupation of the Oval Office is secondary to the biggest miracle of 2016 — the Chicago Cubs won the World Series. Thank you, God bless America.

Bottom line: I think trade deals are a tough row to hoe with the new administration, the dollar will be strong, ag exports will be constrained by both trade and monetary policy. Labor concerns me quite a bit unless we get a softening of the whole wall rhetoric. The most welcome change will be relief on the regulatory front.


On another note…

We had a USDA report out this week that essentially gave the “all clear” signal on the input front. Bean yields were taken to a higher record level, corn yields were confirmed at a higher level, there is no bogeyman in the closet that can be identified anywhere across the globe. All eyes should now focus on South America as its performance will be a (the?) better barometer of prices from here on out.

There was a hint in the USDA report that I touched on in my fictitious Trump speech, one that I think merits a significant evaluation. Along with the crop balance tables, the USDA also provides us a pork outlook that has prices for 2017 averaging roughly $53 on a carcass basis. Compare this to the current prices on the CME — approximately $65 per carcass hundredweight — and you have to question the discrepancy. There is about $25 per hog difference between these two data sets. If it were $5 per hog or so, I would consider it rounding error. But $25 per hog? The beauty of this situation is you can actually do something to take advantage of the CME in case this is the “wrong” value — sell futures or buy puts or do something to protect the higher indicated values on the board.

Comments in this article are market commentary and are not to be construed as market advice. Trading is risky and not suitable for all individuals

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