When Trade Wars Hit the Farm… Who Gets Plowed Under?

Tariffs may be aimed at foreign powers, but the fallout hits America’s fields first. Dan Basse of AgResource joins to unpack how trade tensions are reshaping the future of U.S. farming — from rising anxiety to shrinking markets.

Summary – IBKR Podcasts Ep. 247

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 

Welcome to this week’s podcast. There’s been a tremendous amount of disruption to financial markets during the past several weeks as President Trump rattles the threat of tariffs around the world. Here to discuss the impact of tariffs on U.S. farmers and global food commodity prices is Dan Basse, President of AgResource in Illinois. 
Welcome back to the show, Dan. 

Dan Basse 

You’re welcome, Andrew. Glad to be back. Yeah, lots going on, unfortunately. And it’s all affecting the farmer and the food ag chain, so yeah — good to be with you. 

Andrew Wilkinson 

And just for the record, we are recording this Monday, March the 10th, when U.S. stock markets — and stocks around the world, or U.S. stocks at least — are trading at a six-month low. Just for some perspective there. So Dan, U.S. farmers produce corn, wheat, soybeans, and so much more. Crops are then sold here in the United States and exported around the world. Give us a sense of the flow in and out of the United States. 

Dan Basse 

Yeah, in and out on a broad perspective. So the world food basket and trade is about $1.4 trillion every year. It’s a large amount, as you can imagine. Of that, the United States makes up somewhere around $180 to $190 billion, depending upon the year. So it is a big amount. We as farmers look at exporting roughly a third of our corn crop, somewhere around 20% of our wheat crop, and upwards of around 40% of our soybean crops. 
Most importantly, as you think about U.S. ag exports, it’s going to be corn and soybeans and soy products that are the most important to the U.S. farmer, making up around 50% of the value of U.S. ag trade. 

Andrew Wilkinson 

So Dan, it’s not like we haven’t seen this before, and what I’m trying to ask you is whether U.S. agriculture is better or worse off for it. In 2018, the last round of tariffs cost the U.S. farmer $28 billion in lost exports. Subsidies were paid to many farmers. 
How did that trade war pan out, and have American farmers recovered from it? 

Dan Basse 

Well, American farmers recovered because the president negotiated something called a Phase One trade agreement. Now remember, the last trade war was principally against China. China was the big target, if you will. China at that point decided to get into a trade discussion with the United States. 
It ended up being a negotiation with a U.S. trade rep named Greg Doud leading it. They did a very good job, and we actually were able to secure somewhere between $30 to $40 billion annually in terms of trade between China and the United States — states that were, I wouldn’t say guaranteed, but promised by the Chinese. That lifted agricultural prices in 2020 and 2021 — all the way into 2022. 
Thereafter, the two-year agreement broke down. We’re now back to not having an agreement. China continued to buy from the United States, but this new trade wrinkle, as we have today, throws lots of questions and clouds up into the air for the American farmer — both in terms of income and tradeability going forward. 

Andrew Wilkinson 

Tell us, Dan, how tariffs upset the apple cart. 

Dan Basse 

They’re a tax. When you think about a tariff, it’s a tax. In Europe, they call it a VAT. In other places, we call it a duty. So what happens is, as goods move across borders, taxes are applied. And as prices go higher relative to taxes, either consumption goes down, 
or that cost is passed along to the consumer. Now yes, some of it may be borne by the exporter, some may be borne by the importer or consumer — it all depends on how that negotiation process happens. But it is a tax in the system that ends up being paid by someone. And so normally, that tax translates into slower demand. 
I can go backwards in time. Interesting — when President Nixon put an embargo or tax against U.S. soybeans back in the 1970s, this created an agricultural boom in Rio Grande do Sul — the breadbasket of South America. The Brazilians started producing soybeans. 
So when these taxes get placed, many people start looking for other suppliers with more reliability — and this again hurts the American farmer. 

Andrew Wilkinson 

Give us a sense of how agricultural commodity prices have responded to the proposed tariffs, Dan. 

Dan Basse 

They’ve gone down, as you can imagine — and it depends upon the day because they’ve varied back and forth, let’s be clear on that. But in a general sense, when we started to see talk expanding about tariffs to our neighbors to the north and south — Mexico and Canada — the market started to reel from that. Whether it be livestock or grains, 
everything generally went lower. And we’ve seen a significant decline in the last 10 days, accordingly, based on the fear of tariffs and that addition that maybe demand would be sliding or sources abroad would be sought. 

Andrew Wilkinson 

Does anybody win in a trade war? 

Dan Basse 

The economists can always argue that there are winners and losers. In some cases, as I pointed back to the 1970s when Nixon put a ban on soybeans because of food inflation concerns in this country, Brazil won — because obviously, it started Brazilian agriculture in a brand new direction. 
From time to time, we can look backwards — and now I can point to Brazil again. Since the 2018 trade war with China, China’s now of course sourcing more supply from Brazil. Brazil has seen corn phytosanitary approval — in other words, China must approve a crop and the weeds and everything else that comes into their country from a phytosanitary basis. 
Brazil won that because in December 2022, their corn was approved. Now China buys more Brazilian corn than U.S. corn. So what this ends up doing, without some kind of trade negotiation that really centers on the United States, is that we expand our opportunities to others around the world — and they become more reliable suppliers to some of the key import customers that we have in America today. 

Andrew Wilkinson 

So it becomes a question of national food security around the world, then? 

Dan Basse 

It does. And these days, no one wants to rely on one country for their food security, as you can imagine. So this gets to be very important, Andrew, as we go forward in terms of diversification of suppliers. For the longest time — when I first got into this business in 1979 — the U.S. accounted for 52% of global ag trade. Today that number’s down at around 16%. So you can see how this has all declined over time. Now sure, there’s been the rise of Russia as a grain exporter. There’s been South America that’s come along. But American farmers are not expected to see big growth in trade going forward. 
This is where the negotiation — if we’re going to have it from a perspective of tariffs — needs to happen to solidify trade arrangements, not break them down. 

Andrew Wilkinson 

And what about U.S. farmers? How have they been responding to the uncertainty? 

Dan Basse 

Farmers that I’ve talked to through many conferences and being out in the country are very anxious. They’re worried, of course. We are still looking at — the U.S. government provided $31 billion of ad hoc aid at the end of December. That will help bridge it a little bit here. But farmers like to produce for the market. 
They still like the opportunities to feed the world — that’s why they’re here. And so when they don’t have that opportunity, they get very anxious and they’re pensive about their future. Much of rural America voted for President Trump, so they’re willing to give him some time. But at the same standpoint, they’re not looking for CCC — Commodity Credit Corporation — handouts, which was the case back in 2018 and 2019 to the tune of $27 billion. 
They would rather somehow get to a market, be able to produce for it, and help feed the world. That’s what American farmers do best. 

Andrew Wilkinson 

Is Trump right when he says that farmers won’t have any competition domestically and they’ll sell more at home? 

Dan Basse 

We’re still trying to figure out what he means by that. Is that implying that we’re moving towards more biofuels — such as an E15? Today we’re mixing 5% of our gasoline supply — or 10% of our gasoline supply — with ethanol. Does he mean to add an additional 5%? 
We’re not clear on how that would happen, because domestically speaking, the United States is already utilizing as much corn and soybeans as we can — and wheat. Now, we do bring in some livestock products. We bring in some select beef from Australia. We bring some Canadian piglets in from Canada. We import feeder cattle from Mexico and Canada. 
So maybe it’s something in a livestock directive. But in terms of the big — what I call the three pillars of the food chain — corn, soybeans, and wheat — I don’t know how we’re going to have additionality in terms of domestic demand. It’s a big question mark that we’re all trying to figure out — economically and on the farm — in terms of what President Trump was meaning. 

Andrew Wilkinson 

And how much more difficult does this make your job? 

Dan Basse 

Oh, my job is almost impossible because I tell clients: I do not know what the next headline will be — and that headline will have a direct impact in terms of what grain or livestock prices will do. 
So we can stand back from this and still have our normal supply-demand discussions — including Mother Nature and weather. Day-to-day price activity has become unpredictable, which is chasing some of the investors, if you will, from the agricultural space right now. 
More importantly, what I see — visiting with some of the big commercial grain companies and others — is that we don’t have clarity in terms of what we should be investing in. 
Does it mean more biofuels? Does it mean more agricultural export structures? Does it mean more storage in the interior of the United States? We’re uncertain. So a lot of them are just accumulating cash — a little bit like Warren Buffett — trying to have rainy day funds available just in case the markets aren’t as kind as we move into summer. 

Andrew Wilkinson 

And Dan, I would sign off here — is there a straw that will break the camel’s back here in terms of what might happen in the spring? 

Dan Basse 

I don’t think the camel’s back can be broken quickly, but if this went on for multiple crop years and farmers struggled through low income without government support — by that I’m saying what we call Trump bucks (it’s been called from the 2018-2019 period) — that Trump dollars would come to them, then the farmer would have some difficulty. 
Land prices would sag, farm balance sheets would struggle, and we’d see more bankruptcies moving, unfortunately, in that direction. And one of my big concerns — as I say with Farm Foundation — is farm suicides, Andrew. Farm suicides have been rising sharply in the last six months. It’s not something we like to see happening. 
And so anyway, we can prevent any of that. But stress and anxiety on the farm and throughout all of agriculture is really high right now. 

Andrew Wilkinson 

Dan Basse, thank you very much for joining me today. Dan is President at AgResource in Chicago. Thanks, Dan. 

Dan Basse 

You are welcome, Andrew. 

Andrew Wilkinson 

All right — and if you enjoyed today’s episode, don’t forget — please subscribe to this channel wherever you download your podcasts from. 
Bye for now.