On the campaign trail, it seemed that no blue-collar industry went unnoticed by Donald Trump, promising relief for every factory, plant, mine, or mill from Alaska to Florida. One segment of rural America that received little attention from either parties, however, were the 3 million farmers who toil each day to bring us our three square meals.
If you live in a city you may be forgiven for ignoring this cornerstone of our society, but those closer to the heartland have likely heard more than enough horror stories to curdle milk. To say that the American farming community is in crisis would underscore the depth of the issue: prices for food have dropped so bad that farmers are in as bad a bust as the Dust Bowl of the 1930s.
Those who remember the farm bust of the 1980s will be familiar with the issues facing America’s farmers today. Then, as now, a boom cycle for foodstuff commodities (most notably wheat, which farmers sold wholesale to the Soviet Union in the 1970s for a healthy profit margin) came to an end, leading not only to foreclosed farms but also bankrupt supply stores and agricultural banks.
In 2012, food prices reached historic levels: corn sold for over $8 per bushel, soybeans for over $17, wheat for over $9. Today, the prices for each grain commodity have fallen by more than 50%.
Some farmers managed to ride out the end of the grain boom because a meat boom followed it in quick succession, but by 2014 the prices for cattle, hogs, and milk peaked in quick succession, and today each one trades for as much as half its peak value.
There’s more to worry about than the simple price of a gallon of milk at the grocery store. Many farmers took advantage of the commodity boom to snap up more land, taking on more debt. As the value of the dollar has surged while the price of food has fallen, this exchange looks increasingly foolish.
The end result is that the greatest asset of American farmers today, land, has created such large liabilities that many are being forced to sell, and some have shuttered the farm altogether since they cannot pay their new rents.
The math tells the story better than any one anecdote: American farmers raked in $120 billion in revenue in 2013, but just $60 billion in 2016.
Competing factors are keeping the agricultural industry from being healthily in the black. The growing demand for ethanol across the globe has led to a surge in corn consumption, especially in nations like Brazil where gasoline is mandated to contain at least 18% ethanol. As the price of oil decreases, however, the benefits of ethanol become less and less compelling.
At the same time that genetic engineers are capable of making plants that are resistant to everything from insects to frost to drought to disease, the intellectual property rights of biotech firms allows them to charge a fortune for the privilege of planting resistant seeds.
What’s more, more and more international trade deals increasingly protect food trade rights, making it difficult for American farmers to gain access to new markets. The Trans-Pacific Partnership, while a disaster for many other reasons, would have restricted American dairy producers from selling their products at cost in major markets like Canada and Australia.
Droughts from California to Texas have made water increasingly scarce and expensive despite the fact that 2 out of every 3 gallons of water consumed in the United States go towards crops and livestock.
America exports about 20% of its total agricultural production, the second-largest ratio in the entire world behind only the Netherlands — who, despite being 20 times smaller in terms of population and 200 times smaller in terms of size, is the number 2 in the game.
Trump’s economic pivot to improve exports has focused heavily on manufacturing. In order to improve the fortune of the heartland, however, he’ll need to do much more to encourage more farm growth, possibly including upping the subsidies for grain.
These subsidies already cost taxpayers billions each year, however, and could be problematic at a time when Trump wants to focus so heavily on tax reform. If farmers get squeezed, investors who short-sell agricultural commodities will find themselves sitting high on the hog.
Regards,
Ethan Warrick
Editor
Wealth Authority
