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How Are the Trade Wars Affecting U.S. Farming?

October 1, 2020 by Daniels Trading| Ag Marketing

Reworking U.S. foreign trade has been a priority throughout President Donald Trump’s first term in office. To address this goal, the administration focused its efforts on replacing the North American Free Trade Agreement (NAFTA) with the United States-Mexico-Canada Agreement (USMCA) and crafting new trade deals with the U.K., the E.U., and China. The process has been intense, drawing praise and criticism and creating a hot U.S.-China trade war.

Let’s take a look at the effect of the Trump administration’s trade policies on the U.S. agricultural sector.

The U.S. Trade War and Farming: What Has Been the Impact?

Following a series of heated two-way tariff exchanges in 2018 and 2019, the future of Sino-American trade for 2020 was plagued with uncertainty. Could the world’s largest consumer base and premier ag producer cut a deal? Was upwards of $659 billion in annual bilateral trade in jeopardy? Would relief come to the hard-hit U.S. ag sector?

Although some clarity has come to the U.S. trade war and farming picture, the COVID-19 pandemic has posed a host of new questions. As far as the U.S.-China ag trade goes, it remains all about tariffs, exports, and the willingness to deal.

New to Ag Marketing? Our Hedgucation 101 blog series is perfect for beginners >>

U.S. Agricultural Exports to China Plunge on Tariff Escalation

According to the Office of the U.S. Trade Representative (USTR), U.S. exports to China are worth more than $175 billion annually, with $9.3 billion directly attributable to the ag sector. For 2018, the leading ag products were soybeans ($3.1 billion), cotton ($924 million), and pork ($571 million).

Unfortunately for American farmers, 2018’s figures dropped dramatically from the pre-tariff levels of 2017. According to the U.S. International Trade Administration (USITA), aggregate U.S. ag exports to China fell from $15.8 billion in 2017 to $5.9 billion in 2018. Further, 2019’s levels remained depressed as a tit-for-tat tariff war continued to discourage U.S.-China commerce.

The end result of falling U.S. exports to China has been a major contraction in American ag’s bottom line. A report from the North American Meat Institute projects that 2020’s U.S. net farm cash income is to decline by 9 percent ($11 billion) from 2019. When compared to decade-high levels posted in 2012, this figure rounds out a 30 percent decline. Many factors are involved in the steep contraction in U.S. farming revenues, but the Sino-American trade war is certainly a big one.

Phase 1 Relief?

Although there are discrepancies between the USTR and USITA figures, one thing is for sure: U.S. ag exports to China fell dramatically in 2018 and 2019. As a result, the U.S. trade war and farming dichotomy became a hot-button issue going into 2020.

Early 2020 brought hopes that plunging U.S. ag exports to China would be rectified with agreement on the Phase 1 trade deal. Under Phase 1, China committed to buying $36.5 billion worth of American ag products for 2020. It would target agricultural products across the board, specifically soybeans, pork, and corn.

However, pessimism surrounds China’s will and ability to buy the $36.5 billion in ag goods by year’s end. In late February 2020, the USDA estimated that China was on track to purchase only $14 billion. When Q1 drew to a close, Bloomberg reported that China had bought a meager $3.35 billion worth of American ag products―the lowest quarter in 13 years. As of this writing, it remains unclear whether the lofty goals of Phase 1 will be achieved.

In January 2020, optimism toward U.S.-China relations swelled when Phase 1 was ratified. Unfortunately, the positivity was quickly squelched by the onset of the COVID-19 pandemic. Given the pending 2020 U.S. presidential election and the presence of COVID-19, the U.S. trade wars and farming issues may become tertiary economic concerns when 2021 arrives.

The Global Ag Trade Is Filled with Complexity

As 2021 draws near, the U.S. trade war and farming picture grows increasingly complex. Many different factors are driving the uncertainty. At the top of the list are Sino-American relations, the U.K.-E.U. “chlorinated chicken” debate, the U.S. election, and progression of the COVID-19 contagion.

If nothing else, 2020 has reminded us of the importance of addressing risk. To learn more about how to manage your ag market exposure, check out Daniels Trading’s online resource Hedgucation 101. In it, you’ll find eight articles designed to help you prepare for the uncertain times ahead.

Daniels Trading Ag Marketing Articles

Filed Under: Ag Marketing

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

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THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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