Pictured Above: Trade issues with China created challenges for the U.S. ag economy in 2019. Will Sawyer, lead economist on animal protein for CoBank, spoke at the Moving Iron Summit and during a break sat down to talk with Olga Hall, RDO Equipment’s director of international sales. The two noted even with the Chinese tariff U.S. soybeans are still cheaper than Brazilian soybeans, but because of politics China still won’t buy from the U.S.
Olga Hall, Director of International Sales, RDO Equipment
Will Sawyer, Lead Economist, Animal Protein, CoBank
Olga Hall: We have a two-fold international business. We have footprint and dealerships in Ukraine, Russia, Australia, Mexico and our latest venture in Africa. But, then we also export a lot of used equipment. When we talked about the interest rates, that’s been affecting us for how many years?
Sawyer: You’re ready for those to come down?
Hall: I’ve been one of the strongest proponents of lowering interest rates, so the dollar value will start dropping. It’s not just machinery, but a lot of farmers cannot export their crops. Again, because of the strong U.S. dollar.
Sawyer: The strong dollar is an issue. Take soybeans as an example. Even after the tariff from China, our prices are still cheaper than the Brazil. Yet, the Chinese aren’t buying from us, and they’re buying from the Brazilians. It’s not really about price, it’s about politics.
One example I like to use is U.S. meat exports into Hong Kong. You would think, “Hong Kong has a totally separate tariff system than the U.S.” So, with African Swine Fever and China, we should be sending tons of protein through Hong Kong, but we’re not. It’s down significantly. And the reason, at least in my opinion, is because politics are more important than the tariffs. Any Hong Kong trader could take advantage of the huge arbitrage. I mean the 50% tariff difference between the U.S. and everybody else; there’s a huge amount of money to be made there if the politics would allow it. And, right now they don’t.
Hall: There’s protectionism of course. Brazil and Argentina are famous for that. And, Russia and Kazakhstan joined the crowd. So, all of a sudden you’re standing in the middle of the globe and start wondering, “So, what’s left out there?” We talk about unfair trades with China. But, if you really dig deeper, there is more than China that’s been affecting U.S. exports.
Sawyer: Whether you’re a main ag producer or exporter like Eastern Europe or South America — protectionism. Whether you’re a major growing market for consumption — protectionism. Protectionism is not hard to find these days no matter where you are.
Maybe not on the machinery side, but on the commodity side, the Brazilians have just been cleaning up through this process. What’s the impact for Brazil? Pick your commodity. Those folks are coming out of the recession, a good portion of that is the fact that their ag commodities — grain, meat, what have you — is being sent it into the Chinese market at a huge clip. It’s pretty unbelievable how well they’re doing.
We’ve got a long way to go. Ag is feeling the burn when it comes to this U.S.-China thing. This is looking at the glass half full, but one of the main reasons ag is feeling the burn is because ag has such a competitive advantage for the U.S. We’re great at raising crops. We’re great at feeding them to livestock. We’re great at doing it on a huge scale and sending them into other markets. So, for ag to feel the burn, to me, is more indicative of how good we are as producers. That strength and competitiveness, is not going away just because of this little skirmish between other countries.
Hall: But, sooner or later, like you said, it needed to be done. It sends the signal to the rest of the world.
“We’re great at raising crops. We’re great at feeding them to livestock. We’re great at doing it on a huge scale and sending them into other markets. So, for ag to feel the burn, to me, is more indicative of how good we are as ag producers…”
Sawyer: One of the comments I got after my presentation was, ‘Your talk about dynasties, the Chinese think decades or hundreds of years, not 4-year administrations.” But, at the same time it is important for China to have good export markets. It’d be hard to have a good export market if you don’t include the U.S. We can’t be a quarter of the global economy and China not importing their products here.
Hall: Interesting. I’m sure a lot of surveys have been done with a reaction on all the tariffs, and side effects and immediate impact. Though a lot of farmers we talk to say, “You know what, if this is something that is going to make a difference and you look at it at a bigger scale, it’s worth it.” That’s different from a lot of the surveys or publicity you see around the tariffs.
Sawyer: That’s what a lot of folks outside of ag ask me. When I give my talks they say, “Well, I’m sure ag is starting to come back hard against these strategies and much less supportive than they were a 2 or 3 years ago.” I don’t think so. A few people maybe, but in general, the rural economy is still supportive of these strategies.
Hall: Yes, that’s what I’m saying. There are guys who are looking at the long term vs. the ones who are looking at short term. We see the immediate short term as negative, but down the road, with the global effects, it’s the deeper policy than just what’s happening tomorrow.
Sawyer: But, when you’re thinking about machinery exports, are you seeing folks more reticent to buy from the U.S. because of the politics or because of the tariffs?
Hall: The quality of U.S. manufacturing has always been one of the best in the world. It’s one of the advantages that we have. It doesn’t matter whether it goes to Russia, Ukraine, or Africa. If it’s John Deere or really any other manufacturers if it’s U.S. made, then there are no questions asked.
Sawyer: What are the priority markets for you?
Hall: Africa right now is the growing market. With the saturation of equipment worldwide, Africa is probably the last…
Sawyer: The last market to really need it?
Hall: The last market. A lot of people would be saying, “After that, when that market is saturated, you might as well just go to Mars or Venus.”
Sawyer: What’s interesting, is to get into that market before all the other countries come in, take over and build other barriers.
Hall: Then politics start coming into place and protectionism, and all of the above that we just discussed. When it comes to the fastest growth, the statistics I’ve seen show it’s not the U.S. or other developed countries. It’s the developing countries that start making major jumps and becoming big markets for agricultural products as well as equipment.