When elephants fight, the earth shudders and it creates ripples in the watering hole.
As China and the United States set up to have a trade war, farmers across the globe have to get ready to ride out a potentially wavy financial pond.
Agricultural commodity prices will likely see some lows that defy technical structures as government policies, exclusive of supply and demand musings by traders and speculators, help set the lows. This will be caused by newly subsidized American commodities flooding non-traditional markets.
The American administration has asked the agriculture secretary to prepare a plan to protect that country’s farmers from the effects of being locked out of Chinese markets.
Unfortunately, his plan isn’t expected to contain a program that pays producers not to grow as many acres or animals. That will result in subsidies that ensure American farms are supported at current operational levels.
This would cause export merchants to look elsewhere for markets at prices that reflect the American taxpayers’ contributions to support those commodities.
In the meantime, the Chinese will not be going hungry. They will be buying more from other exporting nations to make up the loss of American supplies. This could be good for prices for in the very short term, but farm subsidies in larger exporting nations have a way of trickling down to the rest of the world’s farmers as the devalued products seek homes.
Over the short haul, acres and barns are fixed and every non-market-dollar that is put into a commodity some place in the system will have a way of lowering producers’ prices somewhere.
As the American’s most tightly held trading partner, that has a tendency to be Canada.
There will be price peaks in those waves of food, but these need to be captured when they come by. The American treasury’s support will make the troughs lower with every dollar spent protecting its farmers from decisions made by its federal administration.
If the eventual deal that is penned contains Chinese tariff reductions for U.S. agricultural products, that will be good for American farmers but bad for any country without them.