WASHINGTON — The stunning election of businessman Donald J. Trump as the 45th president of the United States has prodded food and agriculture professionals and analysts to consider what directions may be taken by the new administration that may change the trade, farm policy and regulatory framework in which they operate. In its initial analysis of what changes may be in store, Rabobank FAR (Food & Agribusiness Research and Advisory) stated, “Trump’s policies are not clearly defined, but statements made during the campaign suggest they could be very different from current policies. The only certainty in the market at this point is uncertainty.”
Rabobank examined both short-term and long-term implications of Mr. Trump’s election and the continued control of the Republican party of both houses of Congress.
The uncertainty over the impact of the Trump presidency on the grain sector was reflected in commodity price volatility and in the share price performance of a number of industry companies in the days following the election, including Archer Daniels Midland Co., down 13% as of the Nov. 11 close; Bunge Ltd., down 8%; and The Andersons, down 10%. The Standard & Poor’s 500 over the same period rose 1%.
Rabobank said in the near term, agricultural markets may be affected by foreign exchange volatility as well as changing business appetite and consumer confidence. In the longer run, the market may respond to potential revisions to trade agreements, labor policies and business regulations, as well as their effects on economic growth.
“Initial uncertainty over policy direction caused a short-term sell-off reaction by markets,” Rabobank said. “A lack of market information creates uncertainty, and uncertainty generates market volatility. Until we have more information about Trump’s actions as a president and his actual policies, the market will remain volatile, particularly when it comes to foreign exchange rates and commodity prices, including agriculture.”
Rabobank pointed to the current volatility in the U.S. dollar and currencies around the world that it said was a direct result of this uncertainty.
The value of the dollar rallied in the wake of the election, making U.S. commodities, including food and agriculture commodities, more expensive in world markets. This, in turn, exerted downward pressure on commodity futures.
Rabobank pointed out the concurrent depreciation in currencies of emerging markets against the U.S. dollar, such as the Mexican peso, may diminish imports from the United States into those countries. At the same time, Rabobank noted, “Mexico’s exports to the United States may get a boost from the depreciation of their currency, and Brazil, a direct competitor to the United States in global export markets, may become more attractive than the United States, particularly in the grain and oilseed and animal protein exporting space.”
The current uncertainty also diminishes the appetite foreign businesses have to invest in U.S. agribusiness, Rabobank said.
“This may reduce the number of mergers and acquisitions transactions initially, although these transactions are likely to resume after policies become more defined,” Rabobank said. “Finally, market uncertainty in the short term may lower consumer confidence in the United States and globally, impacting some food consumption and trade trends.”
Looking ahead, Rabobank said, “Initially, we see trade agreements, agricultural policy and labor as key areas where there are potential policy-change implications for agriculture over the long term.”
During the campaign, Mr. Trump suggested he’d scrap or renegotiate NAFTA and not support the Trans-Pacific Partnership, the trade agreement negotiated by the Obama administration with 11 other Pacific nations. T.P.P. derived more support from congressional Republicans than Democrats and was backed by major agricultural commodity groups. The pact has not been submitted to the Senate for an up-or-down vote.
“While it is too early to know for sure, it is questionable whether U.S. agricultural trade agreements, particularly NAFTA, will stop or go through major changes,” Rabobank said. “This is because the United States, Mexico and Canada are in many ways an integrated agricultural market. Currently, U.S. agricultural exports to Mexico and Canada account for around 30% of total U.S. agricultural exports. At the same time, agricultural exports from Mexico and Canada to the region account for 80% and 55% of total exports, respectively.”
Rabobank said the T.P.P. was unlikely to happen during Trump’s administration. But some markets, such as Russia, may reopen, and other markets may strengthen.
“An improved relationship with Russia may see the end of the trade ban,” Rabobank said. “Prior to the trade ban, Russia was the second-largest dairy importer, and many of Russia’s imports originated from Europe. Yet, it could be that Europe does not benefit from an end to the ban, with Russia choosing instead to keep the sanctions in place. In this case, the U.S. dairy sector may benefit, and that same logic may apply to U.S. animal protein exports to Russia.”
Rabobank said Republican control of Congress may facilitate early passage and implementation of the 2018 farm bill.
“Some potential changes in the next farm bill include a revision of crop programs to adjust to much tighter row crop margins,” Rabobank said. “Due to the challenges U.S. farmers are currently facing, the next Congress and administration will need to begin setting policy objectives and direction as soon as possible. While the direction of the policy can be estimated, more concrete information will be necessary to alleviate market uncertainty.”
Rabobank suggested it was likely the direction of the farm bill will shift even more toward business sustainability and away from conservation.
The Trump administration’s approach to immigration policy will have far-reaching effects on U.S. agriculture.“Assuming a stronger stance against illegal immigration, small business owners may face higher operating costs as a result of labor shortages, which would pressure their margins,” Rabobank said. “In fact, U.S. agricultural producers have already been facing rising labor costs and lower labor availability, caused by increasing opportunities for laborers in Mexico, decreased birth rates in Mexicoand stricter immigrations laws. The challenge for U.S. producers is to remain labor-competitive. It is likely to see some changes regarding immigration and labor. Producers may need to start thinking more about technological investments.”