Agricultural markets are complicated, and any attempt to tell a simple story requires difficult choices about what to leave out.
Take the current trade dispute with China. Byung Min Soon, Tracy Davids and I recently analyzed some of the impacts of one key aspect of that dispute: the tariff China imposed on U.S. soybeans.
One way to tell the story is to focus narrowly on a few dramatic results. The tariff reduces U.S. soybean exports by more than 50%. Soybean prices are $0.78 per bushel lower than they would be without the tariff. Net farm income is reduced by about $4 billion per year.
Those are important findings, but they just tell part of the story. For example, a rearrangement of world trading patterns means that reduced U.S. exports to China are partially offset by increased exports to other countries.
The implications go far beyond the soybean sector. Lower soybean prices mean fewer acres are planted to soybeans and more acres are planted to competing crops. The result is lower prices for corn and other crops as well.
Lower prices for soybean meal and corn mean lower production costs for livestock producers. Thus, while U.S. crop producers are hurt by China’s soybean tariff, it actually results in a small short-term increase in profitability for U.S. livestock producers. That, in turn, means more meat and milk production, which results in slightly lower prices to livestock producers — and to food consumers.
The farm income story is further complicated by government programs. Lower crop prices result in automatic increases in government payments to farmers under some government farm programs, but they also can reduce crop insurance subsidies over time. Then there are the special programs created by the Administration specifically to offset the impacts of lost trade due to retaliatory tariffs.
All of these complicated results flow from analysis of one particular policy, given one particular set of assumptions. However, the world is a messy place, and the full story is even more complex.
For example, since the time the analysis was conducted, it has become clear that African swine fever is having a far bigger negative impact on pork production in China than we had assumed. That means there is less demand in China for soybean meal, and thus less reason to import soybeans to make soybean meal.
With lower total demand for soybean imports, China may be able to get almost all the soybeans it needs from Brazil and other exporters. That suggests a gloomier future for U.S. soybean exports, even if the trade dispute is resolved.
There are many other questions of context, some of which have no definitive answer. How will the broader trade dispute affect economic growth in China and in the world as a whole? Will the end result be an agreement that addresses U.S. trade concerns with China? How will this dispute affect trading relationships with other countries and the operation of the World Trade Organization?
Press stories based on our analysis have told only parts of the story, and it’s easy to be frustrated by mistakes and omissions. However, it’s important to remember that all analysis and all reporting involves making choices about what is important and relevant in telling the story.
