By Shelley Goldberg www.GovenorsBioFuelsCoalition.org
The discussions of the consequences of President Donald Trump’s policies for commodities have largely focused on two areas — energy and metals — because of his emphasis on infrastructure and energy security. Yet a third area, agriculture, has been neglected. And the industry may be a little too complacent.
Rural voters, including small farmers, carried Trump to victory. But will the president come through for them in the ways they expected, particularly when the interests of the small farmer often clash with those of industrialized farming?
Looking at Trump’s policies and staff picks reveals three reasons that the prices of agricultural commodities from corn and wheat to cattle and hogs will fall. This will be good for the consumer but not the farming industry. This price move will be supply-side driven as inventories will rise faster than demand fueled by a fall in exports alongside relaxed environmental standards that reduce the costs of production.
First, it’s been almost two months since Trump announced the nomination of Sonny Perdue, the former governor of Georgia, as his secretary of agriculture. But the White House has been sluggish on the process, and hasn’t provided the Senate with the required paperwork. Meanwhile, Perdue, who spent much of his career in the agriculture business, has been visiting Senate offices for weeks to gain support for his nomination. He was the last member of the cabinet to be named.
The nominee, who has ties to food industry giants, seems a logical Trump pick. During his two terms as governor, he took in about $330,000 in campaign contributions from Monsanto and other agribusinesses. The GMO lobbying group Biotechnology Innovation Organization named him its 2009 Governor of the Year. He is a climate-change skeptic and fought the effort by the Environmental Protection Agency under George W. Bush to enforce the Clean Air Act. And when Georgia was hit by an epic drought in 2007, one of his responses was to summon lawmakers to a prayer vigil on the Capitol’s steps.
Perdue believes he and the president see eye-to-eye on agriculture policy. Yet the hold-up on his confirmation leaves farmers doubting that agriculture is a top priority for the administration, particularly after Trump neglected to mention rural America, a farm bill or agriculture in his hour-long speech to Congress on Feb. 28.
Second, Trump’s key campaign trade policy promises should rightfully cause concern among farmers whose prices were supported by robust 2016 export sales. They are cheering Trump’s selection of Iowa Governor Terry Branstad as ambassador to China, a nation that’s a major buyer of U.S. commodities such as corn and pork. Branstad is expected to press his “old friend” President Xi Jinping to ensure ongoing trade between nations, despite Trump’s contentious words. Branstad’s nomination — along with that of Oklahoma Attorney General Scott Pruitt as EPA administrator — is seen as a gift to the meat industry, given their allegiances to the Iowa pork producers and the Oklahoma beef industry.
But complacency is undermined by the administration’s plans to renegotiate the North American Free Trade Agreement, and Trump’s executive order to withdraw the U.S. from participation in the Trans-Pacific Partnership. Over the past 20 years under NAFTA, U.S. agricultural exports to Canada and Mexico tripled and quintupled, respectively, according to the U.S. Chamber of Commerce. In the 2015-2016 marketing year, U.S. exports of corn to Mexico and Canada totaled more than 14 million metric tons, a record in the tenure of NAFTA, valued at $2.68 billion.
The TPP was designed to eliminate 18,000 taxes and barriers blocking the free flow of goods to 40 percent of the world’s consumers. It also modernized rules of trade and sanitary and phytosanitary chapters and was the first trade agreement to address biotechnology.
Although it was intended to pave the way for new negotiations, these directives could severely curtail global market access to U.S. farmers and open up existing export markets to new levels of competition, leading to oversupply in the U.S.
The choice of Pruitt, meanwhile, is a mixed bag. While he has endeared himself to the American Farm Bureau Federation, the chief lobbyist for “Big Ag,” with his fiercely anti-regulatory stance, Pruitt has fought the EPA’s Renewable Fuel Standard, which boosts the ethanol industry by mandating a level of blending with gasoline. Any opportunity to reverse or relax fuel standards would put a major dent in domestic corn consumption, again resulting in excess supply.
Trump’s crackdown on illegal immigration and the proposed Mexico border wall should also give farmers pause. Today, undocumented workers make up about 40 percent of the farming workforce, making it harder to to fill positions that many Americans consider undesirable.
Third, as Trump begins dismantling President Barack Obama’s EPA rules, high on the list is the 2015 Clean Water Rule. Trump called it “destructive and horrible,” and has signed an executive order asking Pruitt to repeal and replace it. A scaled-back rule would grant farmers more leeway to pollute certain waterways that are important to wildlife and human health and nullify the EPA’s ability to intervene.
Additional rollbacks are expected in Obama’s USDA regulations passed at the end of 2016. They expand small farmers’ “protections against the most egregious retaliatory practices” used by big chicken companies such as Tyson and enact stricter animal-welfare standards for organic producers.
Pruitt cannot just repeal these rules through executive order, as he and the Army Corps of Engineers must go through a federal rule-making process to replace it, which could take several years. Nevertheless, looser regulations means lower costs of production, greater supply and alas, lower commodity prices.
In the USDA’s monthly WASDE report released March 9, the agency predicted slightly higher agriculture prices this year, though it’s likely that Trump’s policies are too recent to have been factored into the analysis. Yet it’s a reasonable assumption that, barring any weather related setbacks, the U.S. will have an oversupply of agricultural commodities, and thus, lower prices, only exacerbated by a stronger dollar.