Hurt Gives Trump Mixed Reviews in Wabash
Published: Friday, February 16, 2018
Purdue University Extension economist Chris Hurt was in Wabash last week to give an ag outlook meeting. But had he been giving grades, President Trump would have received an A and an F. The A would have been for the recently-passed tax reform bill.
"This is a very business-friendly piece of legislation that I believe will be very positive for farm families," Hurt told a large crowd at this year's initial 2018 Adult Farmer Class meeting.
Some of the more obvious benefits of the act included essentially doubling the standard deduction and the reduction in the rates of the tax brackets, the latter of which is in place through the year 2025. Also, the first 20 percent of farm income ("pass through income") as reported on Schedule F will not be taxed.
Another favorable provision is the ability to expense items which were formerly depreciable. Hurt said that now these capital improvements could be either expensed or depreciated, giving farmers the flexibility to choose which method is more favorable for their operation.
A measure important to farm families wanting to pass on their operations to future generations includes the doubling of the federal inheritance tax exemption to $22 million per couple. This provision is indexed for inflation, also runs through 2025, and continues stepped up basis at death. Hurt reiterated his belief that the bill would be very beneficial to farm families.
"If someone had asked the farm sector what all they wanted in a tax reform bill, I think we would have stopped short of requesting what's in this one," he said. "We'd have probably said, 'That would be asking too much.'"
But as positive as Hurt's assessment of Trump's tax bill, his take on the president's trade actions were equally strong, but in the opposite direction. Referring to a Reuters headline from that morning, Hurt said that China's bombshell announcement that it was going to review imports of American sorghum for anti-dumping violations was a clear warning towards Trump's core farm base.
"The Chinese know that sorghum is produced primarily in Oklahoma, Kansas and Texas, which are some of the most Republican states and a key part of Trump's support," he said. "This is clearly in retaliation for Trump's decision to place tariffs on solar panels and washing machines imported from China."
He continued that for the U.S. to place tariffs on those goods was essentially a "slap in the face" to the trade policies which have existed between the U.S. and China. He added that if we were going to do that, we'd better be prepared for the Chinese to slap back.
"Sorghum was just a warning shot," he said. "China only imports about $1 billion of American sorghum annually, while they import about $12 billion of American soybeans. This is their way of letting us know that if we want to play that game, soybeans are their real target. And if the Chinese stop importing American soybeans, which is 20 percent of our total production, my estimate is that we're then talking about $6 beans."
"This has been agriculture's fear from day one with the Trump administration, that we'd get into trade battles with some of our major customers," he continued. "We're at a very vulnerable period of time to be starting down this track, and this is scary."
Regarding the current level of commodity prices, Hurt said he noticed last August that ADM in Logansport was piling corn outside. As he learned, the new piles were not early 2017 production, but 2016 corn that farmers were hauling in, and was promptly covered up for long-term storage.
"Our problem is that we're producing more than we consume," he said. "Our ending stocks have increased for the last five years, and for the 2017-18 marketing year stand at nearly 2.5 billion bushels. Our rate of usage has really been pretty good, but usage is not going to bail us out of this. We're going to need some kind of supply issue, like a weather event, to make a difference."
The picture in soybeans was not all that different, with 2017-18 ending stocks projected at 470 million bushels, given an average year. Hurt said he expected about 1.5 million more acres of soybeans this year, which he predicted would result in a harvest price next fall of less than $9 per bushel.
"Last week, you could contract beans for $10, which looks pretty good in comparison," he said. "While you don't want to get too aggressive, now might be a good time to at least get started making some sales."
Hurt said that at current commodity prices, many farm operators are losing money, but predicted gradually increasing prices for corn, soybeans and wheat for the next three years. He expected that by the 2020 marketing year, with marketing year averages prices of $4 for corn, $9.45 for soybeans, and $5.10 for wheat, revenues would finally catch up with production costs.
Although grain prices have been low for several years now, Hurt said that low feed costs, coupled with good consumer demand from strong U.S and world economies, had helped to "rebuild the livestock industry." He said the outlook for beef, hogs and eggs looked good for 2018, with the lone exception being dairy.
"The dairy industry was struggling with $18 milk in 2017, but it looks like they're going to have to deal with $16 in 2018," he said.
Until the projected grain price recovery occurs in 2020, Hurt described the interim time period as one of "sustaining," rather than prospering.
"We're not in a time of building now," he said. "Rather, this is a time for trying to hold on to what we've got."
Hurt urged operators to continue their efforts to drive down costs. He acknowledged that farmers generally have been diligent in their efforts to do so, including cutting family living expenses in many cases. But he identified cash rents as the cost that still needs to come down more.
"Going by Purdue's 2018 crop budget, by paying the prevailing cash rents, tenants are actually giving away their wealth," Hurt said bluntly. "You need to continue to show your landlords your numbers, and explain that you can't continue to pay rents at this level. And you landlords in the audience, you need to take note of that, and expect those kinds of conversations."
Hurt closed his presentation with a quote from the late pastor Robert H. Schuller, "Tough times never last, but tough people do."
"The reality is, these are tough times," he said. "But when dealing with any problem, the most important thing is perseverance, getting up tomorrow morning. Many of your families go back five or six generations, and every generation has had their challenges. They all overcame them by perseverance."
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