Perspectives on U.S. Ag Under the New Administration
With the U.S. to come under a new president in two months, it seems useful to explore the likely policy moves and directives that President-Elect Biden will make as it relates to U.S. agriculture. While much of the new administration’s early efforts will be to respond to the Covid-19 crisis, he also will likely put into play his broader priorities that his campaign signaled. Of those, Biden has made clear he will move quickly to address policies that counteract climate change and those could have tangential impacts on U.S. agriculture. In terms of trade, Biden’s overarching views do not differ substantially from Trump in terms of China and other countries that the U.S. believes have unfair trade practices.
Here we try to enumerate what we see as the likely direction on U.S. policies under Biden and what effects that could have on farmers and commodity markets.
Climate Change: A Mix of Carrot and Stick Policies
Biden’s climate change policies can be classified into two tiers. The first is new policies designed to create taxes and tariffs on poor climate practices. Oil and gas are likely to be central to that approach but it has also been put forward that imported goods into the U.S. would be environmentally scored with a tariff cost imposed for climate unfriendly production.
The second policy method will be to encourage green energy practices and reduce the carbon footprint. Here, there is quite a bit of discussion on investment and research to fast-track clean energy production and infrastructure, especially as it relates to the transportation sector. The Biden campaign mentions the positive environmental impacts of ethanol but seems to put added emphasis on advanced biofuels which likely means policies that liberalize corn-based ethanol use are not likely to expand greatly.
Agriculture is also viewed as a partner in climate objectives as the Biden road map specifically calls out farming practices as a tool. Biden’s plan calls for investing in climate-friendly farming such as conservation programs for cover crops and other practices aimed at restoring the soil and building soil carbon. However, the particulars of what those incentives would look like are not well known.
Trade Policies Likely to Stay on Current Course
While Trump and Biden share similar views around foreign countries that have unfair trade practices, their approaches for resolution and restitution are sharply different. While Trump was willing to pull out of multilateral trade agreements and institutions to impose the U.S. will, Biden will likely move the U.S. back into favor with global partners.
Of most importance is the situation with China, still under a Phase 1 trade agreement. Biden will likely not take a head-on fight to China but also given his pro-labor slant will likely not give much latitude to China in regards to subsidies and intellectual technology transfer that were sticking points of the trade war.
The Trans Pacific Partnership also remains a significant unknown as the U.S. has been left out of that key trade agreement into Asia. Biden has not given attention to any plan to bring his country back to the TPP as he was emphasizing the protection of domestic industries.
Ag Market Calculus Shifts
In recent months, the U.S. dollar has fallen which is a key factor in a reversal of fortune for U.S. grain prices. That trend likely continues under Biden as geopolitical trade risks are reduced under the new administration and the U.S. Fed likely resorts to more money printing and bond buying activity to support the economy. All of these factors would help bring the dollar more in line with long-run norms and out of the overarching heights of the past few years.
But, probably the biggest factor to benefit U.S. farmers is the changing feed grain landscape in China. After removing its corn production subsidy several years ago to work down large surpluses, China now finds its stockpiles depleted and needing to fill the gap between limited domestic production and growing demand from the international market. After importing about 2 to 4 MMT of corn in recent years, USDA upped the ante for the 2020 crop year to 13 MMT and even USDA’s Ag Attache to China suggests needs are closer to 22 MMT for 2020. While this has short-run impacts on prices, it also likely means that the future will see 20 to 25 MMT of China corn imports, something the current global market has not adapted too. As such, we see this as a catalyst going forward that will need to entice more corn acres, especially in 2021 where U.S. futures prices are not particularly impressive to bring on new supplies.
FBN's Take On What It Means For the Farmer: More predictability on policies and trade should be key features going forward under a new administration. And while farmers may see some new programs that encourage sustainable practices, the future looks particularly promising as economics work to favor U.S. exports thanks to a weak dollar and a Chinese demand that should be a key U.S. market going forward unfettered by trade disputes.