More tariff shots were fired late this week from China and U.S. leaders, escalating fears of a global trade war, and the stock market showed investor concerns about what will happen next with significant drops.
As the Dow closed down more than 570 points Friday, those in the agriculture industry braced for a rough ride.
The tariffs being threatened by China, many on agricultural products important to Kansas' economy, are the dominant issue in a tough landscape, said Josh Roe, deputy secretary at the Kansas Department of Agriculture. But they aren't the only issue.
"We haven't seen these levels of net farm income since the '80s, and that was a terrible time for the agriculture industry," he said.
Those farm income levels are despite record level commodity exports in recent years, and with corn and soybean production at near-record levels in the last two years, Roe said.
"In 2016, we produced more bushels of grain than we ever have in the history of the state of Kansas," he said. "We're still at this point where a vast majority of our producers are losing money. Any additional shocks to the system could just be absolutely catastrophic."
Net farm income in 2016 was $43,161, on average, with the upper 25 percent of farms at $218,486 and the lower 25 percent showing a loss of $105,241, according to Kansas Farm Management Association data. That compares to 2013, when the average net farm income was $143,315.
Farmers are juggling multiple balls in the air, keeping a close eye on drought conditions, tariff threats, interest rates and the federal Farm Bill.
What's happening in any area can cause seismic shifts, Roe said.
"In 2016 and 2017, our net farm incomes were still very low, but they weren't as bad as projected because we were able to have these near-record productions," he said. "If we can't do that — if we're looking at far below average yields, and then obviously losing a market source, it could just be devastating overall."
Glynn Tonsor, Ph.D., is a professor of agricultural economics at Kansas State University who tracks the beef industry. Domestic and export demand for meat has been strong, which he said has "bailed out" the industry.
"Meat prices are higher than we expected, which is good for livestock producers, but I’m purposefully emphasizing both domestic and foreign demand," he said. "We’ve exported more beef and pork in the last 12 months than really ever before, and people are concerned with what will happen if that stops. If we lose any market, it doesn't matter which one that we currently export to, then that volume, whether it's beef or corn, either has to go to a different country or that volume stays here at home, both of which you're going to get less value than you did before."
Kansas beef producers haven't been in as dire of a space as the crop producers, Tonsor noted.
"2017 for cattle producers was a decent year, not the best but it definitely wasn’t the worst," he said. "They were in sort of decent shape for this. If it was row crop, wheat or grain, you could not say that. Grain producers had a few-year run of adverse conditions."
Dan O’Brien, Ph.D., is an associate professor working with Tonsor who more closely tracks crops. Although concerned about tariffs, he stressed that the governments of both countries are just threatening at this point. A more immediate concern is drought, but he called the wheat crop resilient as farmers wait to see what's really happening with it.
"I don’t think anyone’s quite ready to declare that it's dead yet, mainly because we’ve seen the crop come through in the past, in similar questionable situations," he said. "Right now, it’s not looking really good. The likelihood of having a serious shortfall for hard red winter wheat in Kansas grows on a week-by-week basis."
The overall farm economy, he said, is certainly showing signs of stress for a fair number of people.
"I don’t know that those things have reached a crescendo yet, in terms of intensity, but unless we’re getting the wrong signal, there’s certainly signs of stress out there," O'Brien said.
It's difficult to categorize with averages or on an overall basis because looking at net farm income, there are farmers doing well. That can vary in different parts of the state facing differing drought conditions.
"I think there’s a significant proportion of our ag clientele that are having cash flow challenges," O'Brien said.
The tariff situation adds more uncertainty to the mix.
Alex Breitinger, with Paragon Ag Advisors in Silver Lake, emphasized how little markets like uncertainty, as shown with Friday's closing numbers.
"The whole agriculture industry is trying to figure out what this means," he said.
In looking at the commodities markets last week, Breitinger said many had an initial downward reaction but then leveled off. Pork, however, is the No. 1 market feeling pain.
"Since the beginning of the year, for example, prices are down 30 to 40 percent," he said. "That whole decline has not been just because of fear of China (tariffs). But in the wake of that news, they've also not recovered, and fell to the lowest level in about a year and a half (on Thursday)."
As farmers and ranchers struggle to understand what tariffs might mean and deal with other industry-wide challenges, Roe said he reminds Kansans how important the ag industry is to the state. With all the associated businesses supporting agriculture, it accounts for about 45 percent of the state's economy. When considering everything from ag equipment to auto dealers and even computers, sales taxes take a hit when agriculture suffers.
"Every 1 percent decline in commodity prices we see reduces sales tax revenue by $7.8 million for the state," Roe said. "On a multi-billion dollar budget, that doesn't seem like much. But you look at some of these commodity prices being 30, 40 or 50 percent lower than they were in 2014, and you take that $7.8 million times 30 and 40, and you start to see some real large impacts.
The tariffs could have statewide impacts.
"Nothing in the state exists in a vacuum," he said. "You throw in the largest single sector in the state, aircraft manufacturing, as being impacted by tariffs, and then you have these ag prodcuts — it's a perfect storm for not very good things."
As a seventh-generation farmer, Roe said it's tough to look at things that you can't really impact.
"As one farmer, I can't move the market," he said. "Really, the only thing I can control is my cost side of the equation, really limiting inputs, limiting other costs. That leads to those sales tax numbers from before. I'm not making those investments in conservation practices or equipment and other pieces that were stimulating the economy."