Tariffs are sprouting more problems than profits for America’s farmers. Andrew Wilkinson speaks with Dan Basse of AgResource to dig into the trade war’s real cost—on crops, consumers, and the future of global agriculture.
Summary – IBKR Podcasts Ep. 256
The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.
Andrew Wilkinson
Planting season is underway in the Midwest, but the threat of tariffs still looms large. Here with me to discuss food and commodity prices and the impact of tariffs is Dan Basse, president of Ag Resources in Chicago, Illinois. Welcome to the show, Dan.
Dan Basse
Oh, you’re welcome, Andrew. Glad to be back. And yeah, climate is everything in terms of the Midwest and getting seed in the ground, which we’re doing quite aptly.
Andrew Wilkinson
What is the political climate like in the Midwest as growing season gets underway down this year?
Dan Basse
Farmers are planting seeds, who are preoccupied with that, but there’s a lot of anxiousness, Andrew. I can’t underscore enough the anxiousness that is there. Farmers are very concerned on trade policy, and they know that it has a big determination on their net farm income.
They hear promises of maybe some help financially from the administration, but they’re worried, with corn, soybean, and wheat prices well below where they’ve been in the last four years.
Andrew Wilkinson
Do farmers share the same view as the President—that the U.S. gets a raw deal when it comes to selling prices of exports?
Dan Basse
I think the U.S. farmer sees himself as being part of the solution in terms of feeding the world. He has a little higher morality when he thinks about the crops that he produces, and then the ability to go to countries like Africa and India, Bangladesh, and feed people that need calories.
And so when he thinks about trade, he is not thinking that he’s getting a bad deal. Now, he understands that he has competition—Brazil, in particular, is an up-and-comer. But for the U.S. farmer, he just tries to produce a big crop at a decent price so he can help feed the world. The old AC acronym of “he’s the grocer to the poor.”
And that’s really what happens—that the American farmer sees himself as a real supplier of foodstuffs.
Andrew Wilkinson
Dan, we’re still waiting for trade talks with China to begin, but when they do, we can expect them to take quite some time to come to an agreement, I’d expect. What are the aims of the trade talks from a farmer’s perspective?
Dan Basse
The U.S. farmer remembers, Andrew, the old Phase One agreement, which was signed back in January of 2020, in which the Chinese pledged to buy 35 to 40 billion dollars of agricultural goods annually. He saw very high prices shortly after that agreement was signed—we got into a bull market, if you will.
Corn prices moved up to seven and eight dollars, soybeans fifteen and sixteen dollars a bushel, and he made lots of money. So he understands the importance of trade deals with China. He’s hopeful that the administration can do another like trade deal. The Chinese have been preparing over the last four years—the last administration—for what is happening today.
So I’m a little more circumspect in terms of what will happen. I think the Chinese are well down the road in terms of getting a trade deal. I do believe that there’s opportunities to reduce tariffs, because right now it’s an embargo. So I don’t think any country can have their economies work in that environment. But the U.S. farmer needs the Chinese, and he’s afraid that they’re going to exclusively go to Brazil, and that will be a problem structurally for the U.S. farmer longer term.
Andrew Wilkinson
So at present, we’re expecting, by default, tariffs to come into play until President Trump scales them back—assuming progress is made in negotiations. From your perspective, Dan, who pays the tariff? Is it the importer, the exporter, or the customer?
Dan Basse
It’s a little bit of everything in the beginning, because I think we all look at splitting our fair share. And in early days, the importer and exporter try to work things through on a contractual basis. But longer term, that can’t happen beyond a couple of months. It will be shared by the consumer.
So ultimately, it’s a tax. Tariffs are a tax, and tariffs will get put back onto the consumer over time. And whether that be somebody importing U.S. grain or meats or other ag products, we would imagine that it will cost extra. Now, what’s helping a little bit nearby is that the U.S. dollar has dropped.
That means that some of those costs, if you will, can be absorbed a little more easily. But longer term, that tariff has to be paid for by the consumer—someone who is likely to feel a little inflationary pressure and a little angst himself in terms of higher grocery bills and costs down the road.
Andrew Wilkinson
Assuming that progress is slow in coming to an agreement, President Trump has already indicated that there’ll be subsidies for farmers. You mentioned that earlier, Dan. What impact do subsidies have on farm prices, and do farmers like the prospect of subsidies?
Dan Basse
I have to go backwards in time a little bit. We farmers are getting checks in the mail right now. It’s coming from the Biden administration, which at the end of December handed out 31 billion dollars of subsidies to agriculture. Of that, about 10 or 11 billion dollars will go directly to the U.S. farmer.
This works out to be somewhere in a range of—oh—39 to 43 dollars an acre, depending upon the crop. This helps, if you will. The farmer is now running to his mailbox to see how big his check is. But that being said, farmers don’t like—how should I say it—farming for government assistance. We like farming for the opportunities that the market provides. And so, with that in mind, the farmer’s still—as I said earlier—anxious. He’s worried about his net farm income. He’s losing money at today’s farm prices that are existing. So he will need some assistance if the markets do not provide some kind of rally effort, either through other trade deals that the U.S. will be doing or a trade deal with China.
With that in mind, he’s hopeful, and he is wanting to produce for the market, Andrew. But today he’ll take his check, and he’ll look for another one probably in the October–November timeframe, which is when this administration is promising the next tranche of aid going forward.
Andrew Wilkinson
Dan, what does a win—or a win-win—look like in trade terms?
Dan Basse
The U.S. farmer would tell you that if he could somehow get China back as a more exclusive customer for agriculture, that would be a win for him. He remembers back to the Phase One agreement in which he was, of course, competing with Brazil, but had some exclusivity with that trade deal to sell more goods to China.
So the purpose of all of this, we hope, is that U.S. farmers will be treated more fairly in the world market. By that, I’m saying that U.S. farmers today are the high-cost producer of the major exporters of the world, and those exporters are: Russian farmers for wheat; Brazilian and Argentinian farmers for corn and soybeans; maybe Canadian farmers also for wheat.
But the U.S. is the high-cost producer. This is a position that’s foreign to him. So as he thinks about looking forward, that high-cost producer must assure himself some markets. And so the hope is that the trade agreements that the U.S. will sign with other countries—and with China puts the U.S. farmer on equal footing, that he can maybe sell some of his goods, and he can then, of course, be able to spread his costs over many countries. That gives him an advantage. That’s possible. That would be a win-win in terms of the U.S. farmer.
Our concern going forward, though, is that in the world of agriculture, it’s the most aggressive competitor-supplier. That’s not going to be the U.S. farmer. That’ll be the Black Sea or South America, and this is where the U.S. farmer is somewhat disadvantaged.
Andrew Wilkinson
Dan Basse, president of Ag Resource. Thanks for joining me on today’s episode.
Dan Basse
You’re very welcome, Andrew.
Andrew Wilkinson
And thanks to you, the audience, for listening. And remember to like and subscribe wherever you download your podcast from. Bye for now.
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.
