U.S. stocks have now fallen for a third consecutive week, and registered this year’s biggest one-day fall this week, as President Trump’s tariff war with China has taken its toll on economies from Asia to Europe and the U.S., including the American farmer, but the White House is refusing to accept responsibility.

“This is basically the Federal Reserve’s problem,” White House Director of the Office of Trade and Manufacturing Policy, Peter Navarro told Fox News. “They are causing this because when Jay Powell got in as chairman he proceeded to rein in interest rates by 100 basis points, too far too fast. Even though the Trump economy is rock solid, it slowed us down a bit because of those higher interest rates.”

Former Fed chair, Janet Yellen, begged to differ in an appearance on Fox Business. Noting that uncertainty about trade “is having a marked impact on business confidence,” Yellen said she thought the U.S. economy was still strong enough to avoid a recession, but she added, “But the odds have clearly risen, and they are higher than I’m frankly comfortable with.”

Businesses and investors agree and clearly think Trump’s tariffs on $250 billion worth of imports from China now at 25%, and another 10% levy due on the remaining $300 billion imports expected later this year, are raising business costs and disrupting supply lines as companies try to source raw materials and components from cheaper sources in other countries.

“It’s a dangerous game,” Dan Ivascyn, the chief investment officer at the fund manager Pimco, said. “We think some economic damage is dealt every day that this uncertainty lingers.”

For those looking for evidence of the US-China trade war hurting the economy, one only need to look at the U.S. farm sector this week.

Heavy agricultural equipment giant Deere & Company

DE, +3.84%

  cut its earnings guidance for a second straight quarter and announced a review of costs as U.S. farmers, hit by China’s reaction to Trump’s trade policies and spring weather disruptions, were unable to afford new tractors.

Farmers are hesitating to upgrade their aging fleets of Deere’s iconic yellow and green tractors as the U.S.-China trade war stretches into a second year and after China reduced its purchases of U.S. soybeans in particular.

The quarterly results “reflected the high degree of uncertainty that continues to overshadow the agricultural sector,” Deere Chief Executive Officer Samuel Allen said. “Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases.”

While the White House this week delayed tariffs on consumer products imported from China until December, it decided to push ahead with 10% tariffs on Chinese agricultural products as well as clothes and footwear from Sept. 1.

But President Donald Trump’s new tariffs on Chinese agricultural products are likely hurting China a lot less than the retaliatory duties Beijing is imposing on the U.S.

China exports of farm products to the U.S. are much smaller than what it imports from America. China shipped $3.1 billion worth of farm goods to America in the first half of this year, while it purchased $5.6 billion of U.S. agricultural items over the same period, according to Chinese customs data.

China has other sources of supply for agricultural crops anyway and is increasing its purchases from Brazil and Argentina, leaving U.S. farmers with rising inventories and lower prices. Chinese purchases of Brazilian soybeans last year surged after Beijing slapped 25% retaliatory tariffs on imports of U.S. agricultural exports.

Private and state-owned companies bought 25 to 30 cargoes of soy from Brazil recently, equivalent to about 1.5 million to 2 million metric tons and this is helping push up the premiums buyers need to pay for soy at Brazilian ports. As a result, Brazilian soybean inventories are now projected to fall to 2.6 million tons at the end of the season, the lowest in 20 years, according to the country’s soy-processor group, Abiove.

Tariffs are not the only problem for U.S. Midwest farmers

Record rain in the Midwest added more pain for farmers this spring.

The wet weather in the U.S. Midwest hit earnings for global grain traders Cargill Inc and Archer Daniels Midland Co, as heavy rains halted barge transport on the Mississippi River and disrupted livestock shipments.

The record rainfall this spring prevented crops from being planted in the U.S. and was followed by hot, dry weather that has cut the outlook for yields and farmer incomes.

According to the US Department of Agriculture, 19 million acres of farmland went un-planted this year.

“Agricultural producers across the country are facing significant challenges and tough decisions on their farms and ranches,” USDA Under Secretary for Farm Production and Conservation Bill Northey admitted. “We know these are challenging times for farmers, and we have worked to improve flexibility of our programs to assist producers prevented from planting.”

Farm incomes are expected to be significantly lower in 2019 due to the record floods which devastated large parts of the farm belt this year.

About two-thirds of agricultural banks surveyed by the St. Louis Fed said their farm clients were severely affected by the flooding through summer.

But President Trump’s farm bailout package and a jump in corn prices in May following the wet weather have helped to stabilize farm incomes to some extent, according to bankers surveyed by the Kansas City Fed.

Nevertheless, following six years of falling farm income and rising debt levels, Trump’s tariff war with China and the recent record floods could lead to a farm crisis on par to the 1980s.

Midwest bankers reported that the percentage of farm loans their customers are having problems repaying hit a 20-year high in the second quarter this year, according to a survey published on Thursday by the Federal Reserve Bank of Chicago.

“The portion of the District’s agricultural loan portfolio reported as having ‘major’ or ‘severe’ repayment problems (6.2%) had not been higher in the second quarter of a year since 1999,” the report said.

The St. Louis Fed said, the second quarter of this year saw the 22nd consecutive quarter for farm income declines in the Eighth Federal Reserve District (Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee). Depressed incomes are expected to continue through the second half of 2019, pulled down by an escalating trade war between the US and China, crop production issues with the possibility of lower yields thanks to adverse weather conditions, and overall agriculture prices remaining in deflation, the Eighth District said.

A review of the Federal Deposit Insurance Corporation (FDIC) quarterly report by Tri-State Livestock News also revealed that “delinquency rates for commercial agricultural loans in both the real estate and non-real estate lending sectors are at a six-year high.”

Delinquency rates of agriculture loans aren’t at crisis levels yet but have trended above historical averages in the last several years as farm incomes in the Midwest and Mid-Southern states have collapsed over the previous six years. Net farm income, a broad measure of profits, has fallen 45% since a high of $123.4 billion in 2013 to about $63 billion last year, according to the USDA. The level of Chapter 12 bankruptcy filings in the farm sector is at the highest level since 2012. The Trump administration is preparing for steeper declines in farm income and recently indicated it was preparing another farm bailout package.

How does trouble in the heartland feed into the thinking of investors in the U.S. stockmarket ?

“Tariffs remain the largest source of risk for equities”, Dubravko Lakos-Bujas, Head of US Equity Strategy and Global Quantitative Research, J.P. Morgan, said in a note on the second quarter corporate earnings season. “Existing US/China tariffs have weighed on corporate profits during the first half of 2019 with S&P 500

SPX, +1.44%

  companies delivering flat earnings growth (ex-buybacks) compared to mid-single-digit trend rate prior to implementation of tariffs.”

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