Midwest Agriculture Conference Session 1 Transcript

AMANDA COUNTRYMAN: Well, good morning. Thank you so much for having us. I'm really excited to be here and grateful for the opportunity to talk a bit about an overview of international agricultural trade and trade policy.

Again, my name is Amanda countryman. I'm a professor at Colorado State University, and I work primarily on agricultural trade. And I also teach in our undergrad and graduate programs focused on ag business and agricultural economics. I also have a production ag background. My family farms in Arizona, where I'm originally from. And so I appreciate the opportunity to talk again about agriculture and international trade.

So for today, we're going to first start talking about why trade matters. So I want to give us a bit of a primer to remember why do we trade in the first place and why does it matter? Because it's always important to be rooted in why trade is so important. So that's where we'll start today. Then I'll provide a fairly brief snapshot of US agricultural trade, and provide a bit of context for both trade partners and key things that we trade in the United States in terms of agriculture.

I'll also give a bit of a highlight reel on US trade policy. You're going to hear all day about trade partners, trade policy, and these topics. And so my goal is to really get us primed and thinking about these topics that we're covering today. I'll talk also about some pretty noteworthy trade challenges that we have in agriculture. And I'll leave us with some optimism and some ideas for opportunities that we have in US agriculture as it relates to international trade.

So first and foremost, trade is driven by comparative advantage. So when we think about comparative advantage and why that matters so much for trade is that countries can focus on what they're relatively good at when we think of production. We can focus on what we're relatively good at and trade the things that we're relatively good at for the things that we're relatively less efficient at producing.

So by exploiting comparative advantage, we can export things we're relatively good at, and we can import things that were relatively less good at, and that allows us to have lower prices overall. So in addition to having lower price levels, because we can trade for what we're relatively better at, import what we're relatively less good at, then we can benefit from lower prices, but also increased variety. And that's really important to remember, especially in this global context, that consumers have a love of variety, and we have the ability to import things that we don't have the ability to produce in the US, or things that are extremely costly to produce here as well.

When we think about the producer perspective in terms of comparative advantage, producers benefit from exports. So producers can benefit from exports. In US agriculture, about 20% of net farm income is rooted in export markets. So that's really important to keep in context. And also in terms of the producer perspective, producers can have access to relatively lower cost imports for things that we rely on imports for. So lower input costs for imports in general and also opportunities to gain from exports.

But it's also important to note that we face challenges when it comes to import competition. So if you're producing in an import oriented industry, you face competition from importers, and that can be challenging when you are a producer in the American economy.

So I think as an economist, sometimes it's really easy to stand here and say comparative advantage is what drives trade. There are overall gains from trade. Trade fosters economic growth. And I could talk all day long about why trade is so great. I'm convinced trade is so great, and it's so great for agriculture, but it's also really important to remember that these trade offs really matter, and these trade offs merit discussion.

So there's this combination of gains from trade, and we can talk all day about the benefits of trade. But there are also costs associated with trade when we think about American agriculture. So again, those trade offs merit discussion.

So Elizabeth already did a nice job of priming us for the fact that we've had a changing landscape of agricultural trade over time. So this just shows US agricultural exports and imports over time. And you can see, in general, we have increasing trade over time, which is exciting. And what is important to note here is that in 2019, the US moved, after about 60 years of being a net exporter of agriculture, the coin flipped and the US became a net importer of agricultural products.

And we're going to talk in a little bit about what's driving that change in terms of agricultural exports and imports, but there are several factors that led to this change. So first and foremost, we've had both increases in US exports of high value products, but we have imported high value agricultural products more so than what we've increased exports in that space. We also had strong exchange rates. We also had robust competition in the international market, some changes in trade partner dynamics who were seeking alternative sources for US agriculture.

So there's quite a bit going on here in terms of this flip from the US being a net exporter to net importer of agriculture in 2019. So we're approaching the end of 2025. The forecast is about a $47 billion dollar trade deficit, with exports at $173 billion and imports at $220 billion.

When we think about agricultural trade by sector, I really want to highlight that while we've had this change in overall trade dynamics, the US is a net exporter of many of the agricultural products that we produce. And there's two overall big bundles of categories where the US is a net importer. And that's for horticultural products, which is primarily fruits and vegetables and nuts, and also for sugar and tropical products.

So again, when we think about it, if we look at livestock, dairy, and poultry, grains, and feeds, oilseeds, cotton and other agriculture, the US still maintains a net export position in trade for those specific products. So again, that big orange bar on the left for horticultural products, again, high value fruits, vegetables, nuts, that's really a big driver for that net import bill in agriculture in the United States.

Now, when we think about shares of export productions, if we think about food grains, grain and oilseed milling, and oilseeds in general, for those three big primary commodity categories, we export more than 50% of production. So if you're a US producer and you are operating in this space and you're aware of the challenges that we have in the international market, this is understandably quite concerning.

So we are heavily dependent on export markets to sustain US agricultural net farm income. And I just can't overstate the importance of foreign markets for US production. It's across agriculture, and especially for some of these primary commodities. When we think about meat products, we export more than 30% of the meat that we produce in the United States. We also import a fair bit of meat, also.

And with that, we'll think about import value in terms of the share of production. The largest category up there is fruits and tree nuts. So again, high-value agricultural products that we import almost 50% of domestic production. Sorry, almost 50% of domestic consumption.

Sweeteners is another big one. We import a lot of the sweeteners that we use, vegetables, sugar and confections. And I also just want to highlight that we've got meat up here. Less than 20% of the meat that we consume is comprised of imports.

And so I realize now that I flipped real quick and I'm going to go back, because I want to talk about the modern classic American breakfast. And it relates to the shares of both what we export and what we import. And I don't want to just skip this, because we're starting in the morning, and I think it's important to think about what do most of us do first thing in the morning, whether when we get to work or before we run out the door?

A lot of Americans typically have a cup of coffee. That's one of the first things that we do. So we typically have a cup of coffee. And I don't about you, but I love coffee. In our household, we joke that we aren't humans yet until we have coffee. And I love Hawaiian coffee, for example.

But if I needed to spend the premium to get a Hawaiian coffee every morning, I might have fewer cups every day. And so I just want to motivate thinking about this classic breakfast. First and foremost, thinking about the share of consumption for coffee. We import the majority of the coffee that we consume on a daily basis.

We think about bacon. I had bacon this morning. April did too. We were very excited about it. We're also in hog country, so that's good. And bacon is super important. And when we think about hog producers, not only do they provide pork for our bacon in the morning, but they also provide pork for other countries as well. And Mexico is one of the most important export destinations for US pork.

The other reason I want to highlight pork, and why I made sure to find a breakfast picture with bacon, is because I want to highlight the fact that when we think about these broad product categories, we can oftentimes overlook the importance of when we think about individual products. And so pork is a really great example where Americans love bacon, but Americans don't necessarily love snout or hooves.

And so when we think about US hog producers, while we have robust demand in the United States for what Americans consider typical, standard pork cuts, we rely on export markets to create tremendous value for the rest of that hog producer. So that's why I wanted to make sure to highlight bacon.

And then on the egg front, we're going to talk a bit about some animal disease challenges that we have in the United States in just a bit. But I want to get us primed because we typically produce, when we do produce, the majority of the eggs that we consume in the US. But we've had an animal disease outbreak that has been tremendously devastating for US egg production and poultry production, and we've relied on increasing imports to sustain the demand that we have for those eggs.

Then finally, the avocado. Avocado is one of my favorite stories. Because when we think about import competition, it's so easy to just think that if I'm a producer in an import oriented industry and I can import something that brings the cost of that item down, that's probably bad for me if I'm a producer. If I'm a producer and I want to sell something in the market, I want to have the highest price that I can get for that item that I'm selling.

But the avocado is a really awesome example of something where we can't produce enough avocados in the United States to meet the demand that we have for avocados. And part of the reason why most grocery carts have avocados in their basket almost every week at the grocery store is because we import avocados. And so by having consistent access to something that we do grow in the US but don't grow in abundance of to meet demand, that's actually grown demand for this specific product. And US producers can actually sell more in the market because there's greater demand for avocados.

So I was primed that the last thing on here that I don't want to skip over also is I love a nicely seasoned plate or whatever it is that we're cooking. And if we weren't able to import the spices and some of the spices that we use in our cooking, we would be remiss and I would certainly be missing out on my plate.

So that just was a reflection of when we think about-- just think about that modern, classic American breakfast. And we can go beyond these big, more highly aggregated categories to think more deeply about the individual products that we import. Bananas are another good example. I had a banana this morning before I left the hotel, and I wouldn't have been able to have a relatively cheap banana if we didn't import them.

So now I've talked a bit about, OK, why does trade matter? What are we exporting? What are the shares of exports to production and also consumption? It's also really important to think about who our most important trade partners are. And there are two countries that are at the top of both lists when we think of our most important trade partners from both an export and an import perspective.

So our top three export partners for US agriculture are exports to Mexico are 17.2% of total US exports. Canada accounts for 16.1%, and China is 14%. [CLEARS THROAT] Excuse me. So together, the top three export destinations for US agriculture go to three trade partners. 47% of US agriculture exports go to three trade partners. That's kind of wild to me.

And what's also interesting is that several years ago, China was at the top of this list. But China fell because of a lot of the challenges that we have with trade dynamics and also changes in import demand. But just keep in mind that a few years ago, when I would give this presentation, I would talk at length about China being the most important destination for US agricultural products, and that has changed, and China is now number three. Still an incredibly important destination market for the US, but that dynamic has changed dramatically over the past several years.

From an import perspective, our top three import partners, so who we import the majority of our agricultural products from, are Mexico, Canada, and the European Union. So together, these three countries account for 59% of our agricultural imports. So again, it's just important to keep in mind if we were to expand who our fourth and fifth largest import sources are, then we would add China and Brazil to that list.

So now let's think about the trade policy landscape of the United States. So the US has 14 free, I have free in quotes, 14 free trade agreements with 20 countries that were established from 1985 to 2009. And I didn't include the renegotiation of NAFTA, because our trade agreement, the North American Free Trade Agreement, was updated, and we now have the USMCA. But the US has 14 trade agreements, and the last agreement with a new trade partner was established in 2009.

Then in 2017, the US withdrew from the Trans-Pacific Partnership, which was going to be the first trade agreement for the US to enter into force since 2009. So in 2017, the US withdrew from the Trans-Pacific Partnership. And there were promises from both sides of the US political aisle to withdraw from that partnership.

And so since then, we've seen strong competition with both importers and exporters. And again, we already talked about and have mentioned more than once already this morning how the US became a net agricultural importer in 2019 after 60 years of net export lead. So there has in general been lack of progress towards improved US market access around the world, again, with the last trade agreement going into effect in 2009. That brings about concerns, especially from US producers, about access to foreign markets.

Remember, these trade offs warrant discussion. So there have been lots of concerns regarding unfair trade practices that led to the US China trade conflict that started in 2018. And in addition to that, around the same time, there have been continual growing frustrations with the World Trade Organization.

And so the reason I mention the World Trade Organization this morning is because the WTO was established to eliminate the volatility in global markets and to stabilize the global trade landscape. And the WTO fostered tremendous trade growth and integration across global markets, but it faces a lot of challenges.

So one of the challenges is that expanded membership makes consensus difficult. And there hasn't really been any progress in the WTO since about 2008, when negotiators got very upset and left the table about a lot of issues focused specifically on agriculture. There has been a dispute settlement breakdown, and so the US has blocked the appointment of judges through the dispute settlement process. And so right now, the WTO is really essentially at a standstill. And that has led to countries, not just the US, but all countries pursuing trade agreements outside of the WTO. And this has spurred a new era of trade policy.

So the policy environment and context that we're operating under right now is what President Trump announced as the America First Trade Policy Agenda. And that agenda includes a production economy focus with three specific goals. Those goals are to, first, increase the manufacturing share of US GDP. Number two, to increase real median household income. And the third is to decrease the goods trade deficit. So a focus on manufacturing, median household income, and trade deficits.

And so the approach to that has been through what is being referred to as trade defense, which again, this is a new trade policy era that we are living in, and with a big focus on import tariffs. So there's three primary mechanisms that are incorporated in this concept of trade defense. The primary two are Section 232 tariffs, which we first heard about when the trade conflict with China first emerged. And Section 232 tariffs allow for the implementation of tariffs when we have national security concerns. Section 301 is when we have concerns about discriminatory or unfair trade practices.

And then the third emergence in 2025 is the International Emergency Economic Powers, thank you, Act. So that's a mouthful. That President Trump has first announced what were referred to as liberation day tariffs in the spring, which were sweeping, broad tariffs starting at a minimum of 10% and reaching some pretty high values.

What was really interesting, when these reciprocal tariffs were first announced, and the infamous board was held up with some of these reciprocal tariffs, at first glance, it was immediately obvious that these reciprocal tariffs were not, in fact, reciprocal in terms of tariff rates, but they were really a function of trade deficits. So we can think about trade protection in terms of protecting the US economy through these mechanisms, primarily by imposing import tariffs.

So again, after the imposition of these tariffs in the spring, that led to this trade deal scandal scramble. So it left countries scrambling, trying to reach an agreement with the United States to avoid these relatively high prohibitive tariffs. So we've had several countries that have had successful new trade deals. They're not full encompassing trade agreements, but they're really tariff commitments, and they also include a variety of provisions, including investments in the United States and a whole suite of other things.

So we've got the UK, EU, Japan, Indonesia, Vietnam, Philippines, South Korea, and many others that are in progress. And there's been a lot of back and forth with what these agreements look like, and it's caused a lot of concern and a lot of confusion about what's going on in the trade policy space.

So when we think about this concept of trade defense with import tariffs, there is potential for these protectionist measures to benefit import competitive industries. And I'll argue that that is at the detriment of consumers and exporters. At the detriment of consumers, because we're seeing higher price levels when you implement an import tariff. And that also comes at the detriment for exporters, and I'll talk a bit more about that in a minute.

So when we have these new US import tariffs, what are the effects at home in the US? We have increased import prices. We tend to import less. That allows us to substitute for imports towards domestic production. That comes at the cost of, again, increased domestic prices. Consumers essentially lose. Producers have mixed effects.

So again, if you're an importer competing in this import oriented industry, the producer has the ability to gain by having higher prices in the market. And at the same time, if you're a producer operating and you rely on imported inputs, that can raise input costs. So there are mixed effects of import tariffs on producers.

And we've also heard a lot about the government collecting tariff revenue. And the government does, in fact, collect tariff revenue. We'll talk a bit in just a minute about some ideas for how that government revenue may be used.

When we think about the effects abroad, exports to the US become less competitive, and partners find alternate markets, because we have the potential for retaliation. So if we do have retaliation, which are tariffs on US exports, the effects abroad are that imports from the US become less competitive. So trade partners are going to look for alternate sources for relatively more affordable goods and find alternate sources. So foreign producers will have mixed effects. But again, at the end of the day, consumers lose through higher prices overall.

On the US side, US exports become less competitive. So we will export less to the particular trade partner that we face tariffs for our exports. And then the US needs to find alternate export sources, alternate destination markets. So we saw this when the conflict with China first emerged in 2018 and 2019. We saw a domestic support program to compensate producers for lost markets.

So when we think about a crop like soybeans, where the majority of soybeans are being exported to China, and we end up having a really challenging trade conflict where China doesn't want to buy US soybeans, they become cost prohibitive and also politically prohibitive. Then US soybean producers are left holding the bag, and not nearly as many alternate sources to send those exports to.

And so in response to that, again, there were two different domestic support programs created, including the market facilitation program in 2018 and 2019. We also had the food purchase and distribution program and the agricultural trade promotion program in the effort to find new markets for US products.

So the future of trade aid is uncertain. There's a lot of discussion in the ag space right now about what trade aid may look like in the very near future in the US. And recently, there have been discussion to redistribute tariff revenue, to use tariff revenue to supplement a domestic support program for agriculture to compensate producers for lost access to export markets.

The other thing that I want to talk about today is the importance of non-tariff measures. So right now, all over the place, we're hearing non-stop about tariffs that are being imposed on US imports and also the tariffs that US exports are facing. But I think I would be remiss not to mention the importance of non-tariff measures that can be extremely restrictive for US agricultural exporters.

So there are a lot of restrictions placed primarily on conventional US production practices. When we think about livestock and meat across beef, pork, and poultry, we have bans on conventional production methods for the feed and food crop production, similar challenges with biotechnological restrictions on corn, soybean, and rice, for example. And we also have maximum residue limits for pesticide use for fruits and vegetables. So we have a whole suite of non-tariff measures that US producers also face in the global market, in addition to this current tariff environment.

The other thing that I wanted to mention this morning are some of the really big challenges in agriculture that relate to non-tariff measures, because we have non-tariff measures for a variety of reasons. And one of the primary reasons to have non-tariff measures are to protect animal and plant health. And so important in the trade space right now, we have some real both threats and challenges currently already facing production in the US.

So again, the hot topic of right now is the new world screwworm that is approaching the United States from Mexico. And it's a very scary and volatile situation. We already have high path avian influenza in the United States, which has been detrimental mental for US egg and poultry production. And one of the big threats for pork production in the US is African swine fever.

And what I want to mention there, it relates to not just plant and animal health, but some of the ways that these threats can be mitigated from or some ways that we can mitigate agriculture from these threats, for example, using vaccination against disease. There is potential to face non-tariff barriers if we were to implement some of these production practices.

So US producers have big challenges in terms of wanting to safeguard domestic production from plant and animal health challenges at the potential risk of perhaps losing out on foreign export markets if we mitigate in a certain way. Vaccination is one of the biggest challenges that is constantly discussed in agriculture. A vaccination for high path AI has not been approved in the United States.

There are big concerns if we were to vaccinate that we would lose out on poultry exports from the US, for example. So again, I just wanted to make sure that we don't forget some of the other big challenges we have in agriculture when it comes to trade in addition to the volatile trade policy environment that we're facing now.

So some other trade challenges, just in general. The overall uncertainty associated with the trade space, I think, is a challenge that is very difficult in the moment. And so when you have uncertainty in the market, you have uncertainty in terms of what trade partnerships may look like, long standing, solid, strong trade partnerships that are now in jeopardy, I think that creates a lot of concern for US producers and the US agriculture industry as a whole.

Again, trade conflict with key partners remain. We still have really, really big trade challenges with China. And so in the first trade conflict that emerged with China, a lot of the issues that were there, including discriminatory trade practices and a suite of other things, those are still persistent. So trade conflict with key partners remains. Geopolitical conflict is challenging for agriculture. It's challenging for food security around the world and just challenging for stability overall. Exchange rates and strong export competition really matter for US agriculture.

And I wish we had more time, because I could spend another 30 minutes. But luckily, we have Shawn, who's going to talk some about some of the challenges in terms of production constraints, including high input costs. And you're going to hear more than just from Shawn about challenges with high input costs. I know we have a few folks who are going to talk about that today. Drought, that has presented a variety of challenges, and other extreme weather events that have been very challenging for agriculture.

And the first bullet there was labor. And we have a lot of challenges associated with labor, both in terms of labor policy, labor availability, and just a lot of challenges around the availability of agricultural labor in the United States.

So again, when we think about this context of particularly high input costs and some of these other production challenges, and in a current environment of depressed commodity prices, that leads to concerning implications for net farm income. And really of concern are margins for agricultural producers. So again, trade restrictions challenge globally integrated supply chains. We don't operate in isolation. And so these tariff barriers really are challenging.

So this current trade policy context of this concept of reciprocal tariffs and trade protection can protect domestic industries from import competition to try to tackle that concept of decreasing the trade deficit, boosting manufacturing GDP, with this whole concept of a production oriented economy. But that comes at the expense of decreased exports from the US and increased prices.

So with a lot of these challenges that are a primer for the rest of our day, I want to leave you with some cautious optimism. I'm an optimist, and we can't leave the day without-- or at least this first morning that we're not leaving without some optimism. So I think there's a lot of opportunities for agriculture when we think about high value exports.

So right off the bat, we talked about how that switch to becoming a net importer of ag, a large part of that is because we're importing so much high value imports. But we also grew high value exports also. And so I think the US can be a leader in terms of opportunities for exporting high value products.

There is also potential for expanding specialty markets, and we've shown throughout, especially the last several years with lots of global challenges, that we do have an adaptable supply chain in the US in terms of agriculture, even though I think it can be extremely challenging. And I do think there are opportunities for strategic partners that are emerging through this tumultuous trade policy environment. I do think that there can be opportunities for strategic partnerships for trade.

And just overall, I'm confident in the resilience of US agriculture and US agriculturalists. And so throughout these challenges, I'm optimistic, and I'm hopeful for the future of US agriculture and appreciate the opportunity to kind of prime us for a day of talking about what some of these challenges and opportunities are. So with that, thank you.

[APPLAUSE]

DAVID: For those of you that don't me, I'm David Oppedahl, and I'll be moderating the question and answer here. We've got a few already popping up for Amanda. And the first one I think we should talk about a little bit is where do you think economists get things wrong as it relates to agricultural trade?

AMANDA COUNTRYMAN: Oh.

DAVID: Maybe that gets into some of the things you alluded to.

AMANDA COUNTRYMAN: What do we get wrong about agricultural trade? We get a lot of things wrong as economists. I think there are a lot of economists in the room. I would hope we can admit that. What do we get wrong on ag trade?

Well, I'm not sure if necessarily ag economists get this wrong, but I think there is a lot of conversation right now about domestic support. And in the general public, there is a lot of conversation about domestic support. And so we've had a variety of different support programs in the United States, especially right now in terms of emergency relief. And now we're potentially facing additional domestic support in terms of trade aid.

And I think for the general public, there can be a misconception that producers are getting handouts. And I think that at the end of the day, producers want access to freer markets. They want access to affordable inputs. And so I'm not sure that it's necessarily that ag economists are getting it wrong, but I think in general that there's a perception of this concept of domestic support when producers would much rather not have-- I have to be careful how I say-- these market distortions that impede their ability to compete globally.

So maybe that is a place that's leading me to a place maybe that economists can get wrong is I think these policy mechanisms are just further distorting markets. So I guess it depends on which economist is informing policy being made that is imposing additional market distortions that are mucking up markets. That's probably what I would say. That's a hard question. I'm going to think more about it. What am I doing wrong? I'll think about that over lunch for sure.

DAVID: Yeah. I don't that the questions get easier.

AMANDA COUNTRYMAN: Oh boy.

[LAUGHTER]

No softballs from this group.

DAVID: How has recent immigration policy impacted production efficiency and labor costs?

AMANDA COUNTRYMAN: Great question. So I'm not an immigration expert by any stretch of the measure. I have worked on ag labor. And the big challenge, I think, and this is where I will say perhaps some policymakers get it wrong, is that one of the biggest challenges, if we think about the guest worker program in the United States, there are several reasons why it is particularly challenging for both labor availability and also labor costs.

And so if we think about the H-2A guest worker program, it is an extremely cost prohibitive program because of the cost that must be borne by the producer. And that program itself can box small producers out of the ability to bring in foreign labor to work on their operations. And so that is one of the big things, is that not only does a producer have to pay for the transportation and the housing of workers, which increases the costs of having foreign workers, but they also have to demonstrate that there's no domestic person who's willing to take the same job.

And so I think one of the big challenges is that in the United States, the typical American doesn't want to work on a farm. They don't want the hard sweat, labor, challenging work that comes working in production agriculture, picking crops in a field or running a combine. And so I think current policy has made it cost prohibitive to bring in workers.

And again, without being an immigration expert, I think one of the biggest challenges and what I hear often from producers is really a desire to have a workable immigration policy that makes it easier to bring in foreign workers legally, who want to work on farms and contribute very positively to our economy. And those mechanisms are just really challenging right now. It's not easy to bring in a guest worker, and it's extremely cost prohibitive. And I think if that process can be improved, that can just bring about a lot of positive change, both for producers and also on the worker side as well.

DAVID: Here's another easy one. How have changes in the dollar affected the shift away from being net exporters?

AMANDA COUNTRYMAN: Great question. That is one of the reasons why, starting in 2019, the US dollar was really strong. When the dollar is strong, US exports become relatively more expensive in the world market. And so even though we've seen the opposite happen in the start of 2025, that is for sure one of the pressures is that the exchange rate issue is an interesting one, because the stronger the dollar, the more expensive our export products are relative to the rest of the world.

DAVID: And one other one here that's a little bit about the pathogens that are coming in. Are the new screwworms the primary driver for increasing beef prices in the US, or are there any other factors affecting this?

AMANDA COUNTRYMAN: That's a good question. So we're in a situation where we have the lowest herd inventories in, I forget how long, a real long time. And so I think if we were to have new world screwworm enter the United States, that would exacerbate a really challenging problem already. And so drought pressures and previous price pressures are what have caused us to have this low herd inventory. But the primary driver of those high beef prices are herd inventories.

And so right now, producers are facing really hard decisions, because we have high beef prices. We also have high live cattle prices. And they're facing trade offs of do we further liquidate our herds? Do we sell off more coal cows, or do we try to keep our herd numbers up? So while the threat of new world screwworm is incredibly daunting, but that's not the primary driver of why we're seeing high beef prices right now. I think if new world screwworm enters the US, we're going to be in a whole other world of trouble for a lot of reasons.

DAVID: All right. Well, thank you very much.

AMANDA COUNTRYMAN: Thanks.

DAVID: This has been very informative.

AMANDA COUNTRYMAN: Thank you.

[APPLAUSE]

SHAWN ARITA: OK, good morning. First, I want to thank the Chicago Fed. It's a pleasure to be here. My name is Shawn Arita. I'm with North Dakota State University. I'm also the Associate Director of the Agricultural Risk Policy Center.

This is actually a new center, a new policy research center. We're dedicated to providing economic research and analysis for areas of agricultural policy. We focus on two key areas. Risk management, including crop insurance and the farm safety net. Additionally, we also do a lot of work on market and trade disruptions.

So in this talk, I'm going to give an ag trade outlook style talk for 2025. I am going to focus very deeply on the tariff effects. And this is on two levels. Retaliatory tariffs on our agricultural exports. Additionally, the import tariffs on critical inputs for our agriculture supply chain.

Then I want to touch upon the net farm income challenges that we're seeing, particularly on the crop side. So again, the main problem here is production costs are high. We know also too our crop prices are low. I want to touch upon how both trade and tariffs do and do not interplay with some of these challenges that we're seeing.

So first of all, Amanda did a really great job going through trade, why it's important, the trade policy landscape. There's just so much going on on in this front. Too many things to count. For agriculture, whenever there's a trade conflict or whenever there's a trade war, agriculture is always put on edge.

And the reason is because agriculture is the first sector to be targeted in terms of retaliation. That happened in 2018 and '19 in response to the 232 and 301 tariffs. Our partners retaliated us. It wasn't just China. Canada, Mexico, EU, India, Turkey. We were retaliated on a broad level.

2025, once again, in response to the tariffs, we were also retaliated. There are some differences in this time around. I mean, it's interesting in the sense where in 2018, we were retaliated by many partners. In 2025, there was a lot more tariffs that we imposed on our side through the IEEPA tariffs. At least a 10% tariff across the board, virtually every single partner, upwards of 50% for Brazil and India.

I think many of us thinking earlier this year that there would be a full scale trade war. That hasn't exactly happened in that sense, where when we look at who has retaliated against us thus far for agriculture, it's actually only been two major trading partners. Canada earlier. Those tariffs were actually rescinded earlier this month. So we no longer face those Canadian retaliatory tariffs.

But the big one, of course, is China. China, when it retaliates, it retaliates hard. It goes all in across virtually every single one of our agricultural products to face a retaliatory tariff. Just like in 2018, we're seeing it again in 2015.

We can see, actually, earlier this year for a brief period, China's retaliatory tariffs hit over 150%. That was quickly pulled back under the truce. Now they're roughly along the levels we saw during the previous trade war.

There is some stacking in terms of these tariffs. So keep in mind some of the tariffs from the previous trade war, they're still there. The 232 tariffs, 25% on pork, 15% on tree nuts, they haven't gone away. Additionally, the 301 tariffs from 2018, they're technically still on the books. It's just that China is granting us waivers for all of these products.

The new ones, of course, are the IEEPA tariffs in response to [INAUDIBLE] reciprocal tariffs. We are seeing additional 20% for soybeans. [INAUDIBLE] on the MFN is 23%. For corn and cotton, you're looking at 26%. For pork, you have the stacked 232 tariffs, the IEEPA tariffs, MFN. You're looking at more than 60% for a lot of our pork products in the Chinese market.

How have these affected our agricultural exports? We are down to China this year 53% year to date in terms of our agricultural exports to China. So this chart here, we're looking at our exports year to date in 2025. You compare it where we were last year in 2024. We're down across the board. Soybeans down about half. That's just for the old crop. Cotton and sorghum, virtually any exports there, just across the board. Every single product clearly hit by these tariffs were down this year.

Here's a chart showing our exports across our major destination markets. This is our change relative to last year, year to date. The countries on the left hand side shown in the yellow, that's where we're down. So the big one, of course, we're down in China about $6.7 billion year to date. Canada, we're also down. Again, we had some retaliatory tariffs earlier during this year.

In the green, those are the countries where we're up. So we're actually up in most of the other markets outside of China and Canada. Maybe there's some degree of reorientation for some of those products that were going to China. But as you can see, they are not enough to offset the declines that we have been seeing in China thus far. We are down this year in terms of our overall exports.

Here's a commodity export chart. This is in our monthly newsletter. This is the latest one. This is just showing our volume of exports relative to the previous five years. Those commodities in the top left hand corner, they're at five year lows. Beef, sorghum, soybeans, hides and skins, poultry. What do a lot of those commodities have in common? Very much dependent upon the Chinese market. Half our soybeans go to China. Vast majority of our sorghum traditionally goes to China. Beef, as Amanda mentioned, there's obviously other issues, very, very tight domestic supply conditions, but also dependent upon China.

Some sectors, we are doing very well. Ethanol is doing great. Soybean meal, that's more related to the renewable diesel demand. Corn is also doing strong.

But the one that has garnered the most concern, rightfully so, has been, of course, soybeans. As we know, as we've been hearing in the press, we haven't sold a single bushel of new crop soybeans to China this year.

So here's a chart just of the contracts or the bookings. This is the USDA FAS export sales information. So in a typical year, we start lining up. China starts doing its bookings in the summer. That ramps up. Typical year, we may have up to 30 million metric tons of soybeans going to China. In the red, 2025, big flat line. It's a big fat 0. We can see that that echoes what we saw in 2018 and 2019, the previous trade war period. At least in those years, we actually did have a few million metric tons of soybeans on the books. This year we have absolutely nothing.

Additionally, you did see some purchases on the back end of that curve. There was some of that. China did take out its checkbook. They did buy some soybeans throughout that previous trade war period as part of the negotiation process. We haven't seen any of that yet.

This has been putting downward pressure on the US soybean price. We can just see that. You look at the spreads between our FOB prices relative to Brazil. Throughout this year, there has been a widening discount in US soybean prices. Roughly $40 to $50 per metric ton. That's about 10% to 15%, about $1 a bushel.

And again, our tariff is 20% plus the MFN, 23%. Even with these discounts, we're not competitive in the Chinese market, but it seems pretty clear that China is avoiding US soybeans altogether. They have a boycott. It gives them leverage in the negotiations. They're not going to start buying soybeans until they get something out of these negotiations.

We can also see how this is really disrupting our supply chains. In particular, upper Midwest, in particular, North Dakota. So North Dakota harvesting now, just started. Vast majority of the soybeans, North Dakota. You put it on rail. You go through the Pacific Northwest. You send it out through China. Without China, there's very, very little alternative marketing opportunities. We do have some new crushing plants in the recent years, but that's not enough to absorb that Chinese market.

Additionally, it's just too costly. Logistically, it's just too expensive to find a way to rail this out through the Gulf or alternative markets in Europe or Mexico. So what does that mean? We're going to have excess supply of soybeans, not enough storage for soybeans. We are anticipating to pile up those soybeans on the ground. That's putting downward pressure on our cash prices. We've seen our basis. We've seen our basis hit historically low levels, more than $1.50 under. Soybeans, again, it's roughly about $10, $10.10 right now. North Dakota, you're seeing soybean prices below $8.50.

And we production costs. Production costs, that's the biggest problem right now. Production costs dramatically increasing in 2021 and 2022. For soybeans, break even price is about $11 to $12 a bushel. Futures is around $10. If you're in North Dakota, you're getting $8.50. You're looking at upwards of about a $3 loss per bushel of soybeans.

Not just soybeans. If you look at our export sales, our contracts, these are what we look at to see how the sales the rest of the year are going to play out. It's anemic across the board. 0 soybeans, 0 corn, 0 wheat, 0 sorghum. Our other major commodity exports to China, beef, pork, and cotton, very, very weak. We have very little sales or contracts on the books for now.

USDA forecasting $9 billion of exports to China. This is about half or so of what we've seen last year. It's about a quarter of what we saw during a record year in 2021 and 2022. It's less than what we had during the previous trade war.

On the flip side, we'll mention that there are opportunities too. We know that this administration very, very much working hard to include agriculture as part of these trade negotiation discussions. We have seen, for instance, some of these aspects being woven up into some of these deals. There have been announcements by the White House for pledges to purchase commodities. $8 billion for Japan for soybeans, corn, fertilizers, expanded market access for rice, $4.5 billion for Indonesia, $2 billion for Vietnam, $10 billion over four years for Taiwan.

These are a little bit different than your traditional trade agreements. We're not talking about tariffs. But they are reminiscent of phase one. As you recall, we did see back in 2022, we did see record levels of exports. I mean, there was some good timing there. Of course, commodity prices were high. China was also recovering from the African swine fever, had very, very strong import demand.

But there was some clear wins out of phase one. It did help some of those regulatory hurdles. It did send aspirational targets. We don't know the details of these pledges right now. It's yet to be seen. It definitely doesn't hurt. So there is opportunity. We have, with these deals being made, if we have a deal with China, that's going to be a huge opportunity, obviously, for agriculture as well.

Let me pivot to the import side. So we know we have a whole bunch of IEEPA related tariffs on our imports that includes for critical inputs in our supply chain. In the US, we import about $33 billion of inputs. So this is tractors, machinery, pesticides, other chemicals, seeds, fertilizers. We get these from a diverse but also concentrated set of suppliers. So concentrated in the sense if you look at specific products like potash, virtually all of our potash comes from one major supplier, Canada. We do have a few others.

We import pesticides and other chemicals across the world. But if you start thinking about specific type of pesticide ingredients, it can be pretty concentrated. For some of them, we are very much reliant on China. We also import a lot from Switzerland, which faces a 39% tariff. So these are affecting our supply chains.

At the same time, there's a fair amount of exemptions. There's a fair amount of exemptions for the IEEPA tariffs for our inputs. For instance, potash did have an exemption in the February White House executive order. Imports from Canada and Mexico. Most of it is largely exempt under USMCA. And then we also have some chemicals in the White House executive order in April that were exempt as well.

The overall effective tariff trade weighted on our input side is about 12%. This compares with, I believe, about roughly 15% to 16% for the overall for the rest of all goods being imported in the US. So these tariffs are lower than the overall average. But keep in mind that they come from virtually a 0 base. Most of them, except for some of the pesticides or 0, now we're facing upwards of about 12%, a lot higher for the pesticides.

We did take a deeper dive on the fertilizer side, trying to see to the extent that these IEEPA tariffs that have been recently imposed, how have they been affecting our imports. If you look at our imports of these fertilizers before the IEEPA tariffs took place and you look at the latest data after, you do see that our import supply has decreased. Nitrogen based fertilizers were roughly down about 6%. You can see some degree of front loading just before the tariffs came into play. And now we're importing less.

For phosphates, MAP and DAP we're down about 30% year to date in terms of our imports. Some of that may be just related to high prices outside of IEEPA tariffs. But we are down a lot for phosphate imports, which we need a lot right now under the current situation. Potash has been more stable. It's only down a few percentage points relative to the other fertilizers.

You can also see some degree of reorientation in terms of the supply flows. So there was a few countries that were less affected or unaffected by the IEEPA tariffs. Interestingly enough, Russia did not face an IEEPA tariff. If you break it out, you can see that our imports from these countries or sources that face higher tariffs, they have fallen a lot more than what we're seeing in terms of other countries. And in fact, our imports from Russia are up a lot. It's helping to offset some of those declines from the other sources. But at the same time, it does make us look more dependent upon a more geopolitically risky source.

How does this affect prices? I mean, this is where it really matters. How does it affect the prices that farmers face? Here we try to look at the price spreads of what farmers pay for fertilizers relative to the rest of the world before and after the tariffs took into effect. You can see a slight degree. It's too early to tell, but you can see a slight degree that that relative premium that we pay did seem to widen a bit after the reciprocal tariffs, but it's not statistically significant. It's too early to say.

And I would say we all know that fertilizer prices have notably ticked up this year, particularly on the phosphate side. MAP and DAP prices have shot up this year. Not as high during the record year during Russia's invasion of Ukraine in 2022, but in terms of if you look at it relative to the price of our crops, MAP and DAP, those prices are at record levels of unaffordability.

The IEEPA tariffs, though, I think it's fair to say, is not the factor here. Fertilizer's primarily driven by global supply and demand forces, also what's happening in the US. We've had export restrictions in China that's really curtailed a lot of the supply on that side. So again, this is all in the discussion, but just to be clear, the IEEPA tariffs aren't driving these price increases we're seeing on the fertilizer side. They're certainly not helping, though.

So the biggest problem, again, is that we have high production costs, low commodity prices. So here, graph on the left, this is our costs and returns per acre. The red is estimated production costs. So for soybeans, you're looking at roughly about $650 an acre production cost for soybeans. Expected gross revenue is about $530. So you're looking at more than $100 loss per acre for soybeans.

You can see that in 2018 and '19, during the previous trade war, we also had low soybean prices. But the situation is worse now. And the reason is because we not only have low commodity prices, but we have high production costs. That's the difference. And back then, we also had the market facilitation payments that Amanda mentioned, $1.65 a bushel for soybeans, even higher for MFP too. Those did help out soybean farmers back then.

This year, we do have an expanded ARC and PLC benefits under the one big, beautiful bill that did lead to much needed improvements or enhancements in the farm safety net. But that's not enough to make up those losses. And additionally, those payments, as we know, they're not coming in until October of 2026. So we are looking at this cash crunch situation.

On the corn side, it's even worse. If you look at how much more production costs play a role there, very, very steep losses. And this is, again, coming off of a very weak 2024 and a weak 2023. Three years of very, very poor, negative margins.

Here are some rough estimates that some of my colleagues put together using USDA type of estimates. This is for the new crop, 2025. Very steep production costs, very high across the board for major crop commodities. Revenues very low. Net losses upwards of $20 billion for corn. Almost $10 billion for soybeans across the board. In terms of per acre, you're looking at $180 per acre for many of these, many of our key commodities.

Our projected payments under ARC and PLC for 2025, more than $13 billion for these crops. The net losses, though, roughly speaking, on the crop side, about $45 billion. That's obviously a big disparity. Again, we don't get those ARC and PLC payments until October of 2026.

OK, so going back to production costs. I wanted to end off here. So we all know the challenge. The big challenge, again, production costs are very, very high. Commodity prices are low. So here's a chart. So I take the production cost index. This is from USDA-NASS. This is just for the crop sector. So I excluded the livestock.

NASS has this index for the production cost. It includes all the inputs and includes estimates of overhead as well. So including land costs, including labor costs, and general overhead. That's in the red. In the green, this is commodity prices for crops. So this is just a simple index, again, from USDA. It is weighted across all the crop commodities. Sorghum, soybeans, corn, cotton, wheat, everything is in there.

What we can see is that, again, in 2022, we had a big run up in production costs. We had a big run up in our commodity prices. In 2023, our crop prices pulled back dramatically. Whereas, of course, our production costs stayed elevated. The price cost squeeze that we're seeing.

So one thing to point out is our IEEPA tariffs. So IEEPA tariffs, again, 2025. Important to mention the situation we are in now far preceded the imposition of those IEEPA tariffs. Two or three years of the situation with low crop prices, high production costs. So a lot of tension in terms of the tariffs. The tariffs are creating challenges. But again, it's not fair to say that they are the main culprit here. It's the fact that we have very, very high production costs. Certainly, the tariffs are exacerbating the issue.

The other thing that we can see here is that if you look at our production costs in red, in gray, I show CPI just as a reference point for the overall inflation trends in the US economy. 2022, Russia invades Ukraine. We see record surges in fertilizer prices. Our overall production costs in the crop sector shoot up, overshoots the general inflationary trend.

But it does seem like over the past few years, they've reconverged. So if you look at where we are now for our production costs, it seems to be roughly in line with the 10 year trend in terms of the overall inflation that we see in the economy. But the big thing we see is that the commodity prices, our crop prices, those are the ones that have pulled back a lot.

They do not follow the general inflationary trends of the overall economy. They follow global supply and demand forces. That's what drives commodity prices, and that's what makes the situation so challenging, because they move on different levels. Production costs and output prices or crop prices.

Here's another chart. Same thing. This time I also show the livestock sector on the right. And I also go back further several decades. So on the left is the same chart I had on the previous chart, just going back a little further, just looking at the crop side. Green or blue, the blue is the production cost index. That's your indices of all the various production costs that the crop sector and livestock sector face. In the orange, those are your commodity prices.

So if you look at the graphs, it seems like there is this natural long run relationship, generally speaking, between production costs as well as commodity prices or your output prices. So your input prices seem to follow or go hand in hand in the long run with your output prices. This seems to be more the case on the livestock side.

So we can see, for instance, we all know, again, cattle side, extremely tight inventories, record beef prices, record cattle prices. You can see that in 2025, those cattle prices, the livestock prices in general, far overshoot the production costs. You can also start seeing them, though, at least in the most recent data, that it is actually starting to reconverge maybe.

You do see towards the tail end that output price starting to come back to the production costs in blue. Overall, though, you see how, again, this is all just fixed, normalized to 2011. And broadly speaking, they seem to move together much more slowly on the livestock side.

On the crop side, though, you seem to see this divergence occurring in the early part of last decade. So again, going back to 2010, we had a period of high commodity prices. We had another food price spike running from 2010 to 2012. And then commodity prices came back down. Production costs still remain elevated. Your typical price cost squeeze pattern. Production costs do not fall down how you see our output prices.

And then you have this extended period over that decade where you have elevated production costs relative to the commodity prices. Very weak situation in the crop sector, not too dissimilar to what we're seeing now. And then, of course, we had COVID as well as Russia, Ukraine. And you had this big surge in the commodity prices once again, which once again, pulled back quickly in 2023 while production costs stayed high.

So I don't have the answers to this structural change that we're seeing, and I do open this up too. I think this does connect well to, I believe, the next session as well in terms of thinking about the way globalization, thinking about the way the global supply and demand dynamics feeds into this. The livestock side, we know, is not as integrated with the global markets as it is for the crop side. There's a lot more frictions. There's a lot more barriers. There's a lot more SPS TPT issues there. So you do tend to see that those production costs do follow a lot closer to the output prices side.

But on the crop side, we have to ask, well, what happened over that previous decade, what led to this divergence, where we seem to see almost a chronic state of production costs being high and our commodity or output prices being low? We can think of different factors that have been happening. This was about the time Brazil, for example, did step in and become an export powerhouse. Is this an issue of relative competitiveness? Not necessarily just where we are, but what's happening with the rest of the world.

And additionally, we have to think of, well, how do the tariffs that we're facing now, how does this play into this situation? We know that tariffs will have some degree of an effect of increasing production costs. That would raise that blue line. That would edge it up. And also two, it can take away our export markets. It can hurt our demand potential. That would lower our commodity prices or output prices, and it would exacerbate this disparity that we're seeing now.

So I'll leave it at that. I left the link here. We have a newsletter that has a lot of these charts under our ag trade monitor. But also happy to engage with questions now. Thank you.

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DAVID: Well, Shawn, you've elicited a lot of questions here. One of them is, how can farmers close the gap between production costs and commodity prices? Do you have any specific thoughts on that?

SHAWN ARITA: Considering this is a trade themed area, that's an easy one. In that sense, thinking about the trade side, obviously whenever you do have trade deals, they lower the barriers to our trading partners markets. That does increase the demand potential. That does have a supportive effect on prices. You lower those tariffs on production costs. That's going to have an effect of-- we don't see it now.

So we did look through the data. It's too early to tell. We didn't see too much going on in terms of how those IEEPA tariffs are affecting all of our inputs. But again, simple economics would teach you that when you have higher taxes on these products, it's going to raise the production costs, and it's going to lead to that margin shrinkage that everybody's talking about negative margins. I'll stop there. I mean, that's the short answer.

DAVID: All right. We have a question about China. Do you foresee China as being the only market sacrificed by current US trade policy? If so, to what extent can or not India or Africa take the place of that?

SHAWN ARITA: Certainly India has a lot of potential. We do not export a lot to India. So the short answer is nothing immediate. We're not going to get anybody that can step in in the short run to take on that market potential that China offers. India, that's going to be a long work ahead. And again, we have 50% tariffs against India. Unless trade discussions really start picking up on that, and that's going to be a very long work in progress.

On the flip side, there has been a lot of discussion just in terms of the domestic market. Biofuels is a big area. The administration has done a lot on the biofuel side in terms of expanding demand. But even there, that's not going to fill the role of China in the short run. Unless the trade discussions in China improve, we're going to be in the state of disequilibrium, where you have the short run very, very much lost level of demand.

DAVID: So kind of a related one. Taiwan buys more than $3 billion in agricultural products from the US annually. Do we have details to understand how buying $2.5 billion annually is an improvement?

SHAWN ARITA: Yeah, so Taiwan recently, there was an announcement where over four years, they get $10 billion. They will purchase $10 billion of agricultural products. We export about 3 billion or so, so you do the math. It's obviously less. There are specific products being mentioned. So all of these pledges, the details haven't been fully released. They're still under negotiation. We don't know.

I mean, one of the key questions is whenever you're talking about $10 billion from Taiwan or $8 billion for Japan, what is your baseline? What is it? Is it net or is it just some type of target? Phase one in China was like, we did get some details there. It was $32 billion over a certain baseline set in 2017. So that was eventually explicitly listed in the language of the text. We haven't seen any of that for these trade deals.

So we don't know. They're still being worked on. I mean, you got to think it's not purely additive just by looking at the math. You're not going to get eight additional billion dollars for Japan. So I think that's fair to say. It's not going to be additive. Same thing with Taiwan, right. I think it's also fair to say they're just not going to do what they were doing already as well. So we're going to get something out of it, but probably not a full 10 net. It would be something in between. Same thing with Japan.

DAVID: I think we have time for one more here. What happens if our trade partners don't meet their pledges to buy ag goods? What mechanisms are in place to hold them into account? And didn't China not meet their pledges after phase one last time around?

SHAWN ARITA: Yeah, that's absolutely right. So phase one, it went upwards of about $40 billion for China. We came close. I think we hit about $36 or $38 billion. I mean, what happened? I mean, again, there was nothing there that-- there was no clear endpoint, it seems, from that deal. But I think it's important to keep in mind that these are more aspirational targets that were set.

The targets do help. I mean, I think for phase one, it did get the two parties closer together. They started talking a lot more of regulatory issues. There was clear wins out of phase one. I think we hit about $36 or $38 billion. In phase one, there was a clause. We can maybe attribute, again, there was pandemic or other reasons. There was nothing there that.

But again, it's a good question. There was no clear nontraditional it seems from that deals. I think it's important to keep in mind that there wasn't a clear aspirational target for that one other than more tariffs, which we're seeing now. The targets do help. I mean, I think phase one, it did get the two parties.

So again, that's why it's so interesting. We'll see what happens. We'll see what happens with these deals. There's a lot left that just hasn't been specified that we're waiting to see.

DAVID: There are a few more questions in the queue, but I think we'll hold off on those until later in the day and go ahead with our break. So thank you, Shawn.

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