Farm cash flow is down, along with loans from big banks, as the China-U.S. trade war widens, Reuters is reporting. Beijing’s soybean tariffs are hurting American farmers, and spring flooding propelled in part by climate change is making bad matters worse.
As farm cash flow slows, "JPMorgan and other Wall Street banks are heading for the exits," according to a Reuters analysis of the farm-loan holdings reported to the Federal Deposit Insurance Corporation (FDIC). "The agricultural loan portfolios of the nation’s top 30 banks fell by $3.9 billion, to $18.3 billion, between their peak in December 2015 and March 2019, the analysis showed."
What to do? We turn to the farm sector.
"The tremendous challenge of record nominal farm debt and poor economic conditions has led many farmers to seek Chapter 12 bankruptcy as a debt relief and restructuring option," according to an American Farm Bureau Federation statement. "Though Chapter 12 has been a help to many family farmers, its $4.1 million debt limit kept many more from using it."
Fred Magdoff is professor emeritus of plant and soil science at the University of Vermont, an author and a longtime commentator on political-economic topics.
"This is not a particularly surprising story," he told MultiBriefs in an email. "Many U.S. farmers have been having trouble for a number of years. Low prices for basic agricultural commodities such as corn and soybeans as well as milk, have been near or below costs of production. This has caused many to eat into equity while the especially financially strapped ones have gone out of business."
As some American farmers operate at a cash loss, there is movement at the national level.
On July 11, the House Judiciary Committee on July 11 OK’d legislation to help more family farmers avoid liquidation or foreclosure, The Family Farmer Relief Act of 2019 (H.R. 2336). The bill would increase the Chapter 12 operating debt cap to $10 million, up from $4.1 million now.
"Our farmer members have experienced several consecutive years of weak commodity prices and the low profitability and poor farm income that follow," American Farm Bureau Federation President Zippy Duvall and National Farmers Union President Roger Johnson wrote in a joint letter to Congress in May. "As a result, farmers and ranchers are watching their equity erode as their debt-to-asset ratios climb and debt financing reaches a 30-year high."
China placing a retaliatory 25% tariff, or tax, on U.S. soybean imports last July 18 has pushed prices and sales down, one effect of President Trump imposing tariffs on China exports to the U.S.
Brazil’s soybean producers, the world’s largest exporter, are happy campers. They are taking up the lost business in China from U.S. farmers.
The U.S. Soybean Export Council, which declined a request to comment, is meeting next month in China to strengthen the weakened agricultural trade relations between the two nations, and the world’s two biggest economies. Will the USSEC overture help?
Recent data showed that China’s second-quarter economic growth slowed to 6.2%, a 27-year low, which could signal Beijing’s willingness to ease the U.S. trade war. Much is uncertain.
