In the high-stakes poker game of escalating tariff threats between the U.S., China and other major trading partners, American corn, soybean and wheat producers appear to be holding the losing hand. Unfortunately, it could get worse for farmers attempting to market current “old crop” inventories” and their 2018 “new-crop” commodities, including corn, soybeans and wheat.
In just the last four weeks, new crop contracts for corn, soybeans and wheat traded on the Chicago Board of Trade (CBOT) have plunged 12 percent, 14 percent and 13 percent respectively, according to Michigan Farm Bureau Field Crop Specialist, Kate Thiel.
“The $1.42 per bushel decline in new-crop soybean futures is equivalent to $5.9 billion on the 4.3-billion-bushel soybean crop,” Thiel said, citing an analysis from the American Farm Bureau Federation (AFBF). “Similarly, the 51-cent decline in new-crop corn prices is equivalent to an additional $7.2 billion loss in value, based on the projected size of the crop."
According to Thiel, a late-May price rally that coincided with a “cease fire” in the tit-for-tat trade tensions between the U.S. and China and a commitment by China to “ramp up” purchases of U.S. agricultural commodities, many commodity futures contracts traded at or near contract highs in 2018.
New-crop corn reached a high of $4.265 per bushel on May 23 and new-crop soybeans reached a high of $10.535 per bushel two days later. By mid-June, however, trade tensions had not only resumed, they intensified, according to AFBF Economist, John Newton. “On June 15, the U.S. announced a 25 percent tariff on $50 billion worth of Chinese products and China responded quickly by releasing version 2 of the 301-probe list capturing 90 percent of U.S. agricultural exports to China,” Newton said. “Three days later, the U.S. announced plans to identify $200 billion in Chinese goods to target for tariffs, commodity prices plummeted.”
At closing on June 19, many futures contracts traded to contract or multi-year lows, due in large part to a combination of favorable growing conditions and mounting trade tensions. New-crop corn and soybean futures fell to their lowest levels of the year at $3.755 and $9.11 per bushel, down 51 cents and $1.42 per bushel, respectively.
Kansas City wheat futures fell to $4.83 per bushel, down from $5.56 in mid-May, a loss of 73 cents per bushel. Pork and cattle also fell slightly on news of escalating trade tensions, but remain above their mid-May futures contract values.
“There’s no ambiguity in these figures. For Michigan farmers marketing old-crop inventories on the cash-market or attempting to manage risk by marketing new crop production – the negative financial impact to farm profitability is immediately obvious,” Thiel said. “It’s time for U.S. and Chinese trade officials to focus on sincere trade negotiations – not the current mutual assured destruction of our respective economies approach of tariff threats.”