Originally published in Today's Farmer

Global policies can shape the reality of Midwest farmers, where crops such as corn, soybeans, cotton, wheat and rice are heavily influenced by international market fluctuations. This deep tie to international markets can make farmers vulnerable to shifting global trade dynamics. Trade concerns stem from several sources, including recent tariffs on imports from major trading partners including Canada, Mexico and China, which have raised input costs and squeezed profit margins. Additionally, disruptions in global supply chains and protectionist trade measures have further complicated the market, notably in fertilizer supplies. As a result, farmers face an increasingly uncertain landscape, making it difficult to predict future prices and plan accordingly.

International demand plays a key role in this landscape, and shares of U.S. crops exported varies significantly. For example, approximately 40% of U.S. soybean production and 15% of corn production are exported in raw form, with even higher percentages when factoring in processed products. Cotton has an even higher export share, with around 77% of production going to international markets. Wheat and rice also see substantial exports, with significant portions of their production shipped abroad. Key destinations for these exports include China, Mexico and Canada, which are among the top markets for U.S. agricultural products. These countries' demand for Midwest crops plays a pivotal role in shaping the price outlook for farmers in the region and shifts in trade relationships or purchasing patterns can have a ripple effect.

However, as exports can drive income, they can also introduce risk. Countries are allowed to cancel sales commitments of U.S.-based commodities for several reasons. One primary reason is the availability of cheaper alternatives from other countries. For instance, China has canceled U.S. corn and wheat purchases in favor of more affordable options from Brazil. Trade agreements often include clauses that allow for such cancellations under specific circumstances, providing flexibility for both buyers and sellers to adapt to market changes. This flexibility, while necessary for international trade, adds another layer of uncertainty for U.S. farmers. This situation can be particularly frustrating for U.S. farmers because, unlike international buyers, they cannot cancel their commitments to local elevators if they find a higher price elsewhere.

Using the most recent data in mid-February from the United States Department of Agriculture Foreign Agriculture Service (USDA-FAS), there is concern that commodities with large outstanding sales—specifically to Canada, Mexico and China—could be at risk of being cancelled if retaliatory tariffs are enacted. Figure 1 illustrates this risk for each commodity. Total commitments of U.S. corn at 1,827 million bushels are 181 million bushels above the pace needed to hit the current target, but 53% of those commitments remain unshipped with Mexico representing 34%. Total commitments of U.S. soybeans at 1,589 million bushels are 44.5 million bushels above the seasonal pace needed with 18% unshipped. Of the unshipped soybeans, China and Mexico make up 25% and 16% respectively. Total commitments of Soft Red Winter wheat of 104.8 million bushels are 7.2 million bushels below target with 26% of commitments unshipped and Mexico making up 39% of those remaining shipments. Ninety-three percent of sorghum commitments have been shipped, but total commitments of sorghum at 44.2 million bushels are 60.5 below the seasonal pace needed to hit the current export target. Total commitments of cotton are estimated at 9.7 million bales with 57% of sales outstanding and 21% of those unshipped bales destined for Pakistan. Total export commitments of US rice are estimated at 46.8 million hundredweight with 23% outstanding. Of outstanding export sales of U.S. rice, Mexico and Canada make up 6% and 7%, respectively. Increased cancelations of export commitments could lower prices of Missouri commodities.

Figure 1 Share of Outstanding Export Sales of Total Export Commitments. (Source: Author calculation using data from USDA FAS)

Adding to these challenges, rising fertilizer prices could significantly impact U.S. crop acreage. Fertilizer accounts for a substantial portion of operating costs, particularly for corn and wheat, where it represents around 36% and 35% of costs, respectively. As fertilizer prices increase, farmers may reduce the acreage planted to these crops to manage costs, potentially shifting to less fertilizer-intensive crops.

In summary, global policies and market dynamics have a profound impact on Midwest farmers, influencing everything from input costs to export opportunities and overall market stability. This interconnectedness underscores the importance of understanding and navigating international trade and policy landscapes to ensure the sustainability and profitability of farming operations at home.