November 11, 2016

Trump Presidency Brings Even More Uncertainty

 |  By: Dairy Talk

If you’re like me, you’re just relieved the election of 2016 is over. But I have to be honest, I’m still trying to process what happened and where we go from here.

The dairy industry has been foundering in uncertain waters for much of this election cycle. Global dairy markets have languished in uncertainty over much of that period, and the Dairy Margin Protection Program has offered only marginal relief to just a few thousand farmers.

News flash: The fog of uncertainty that has hung over the industry isn’t likely to lift any time soon with Donald Trump’s election. It’s unlikely he’ll be able to enact even a fraction of his agenda, given the opposition within his own party. Governing is much harder than voting in protest.

The Trump Administration will likely do the easy stuff, like roll back Obama Executive Orders and regulatory mandates. Farmers can probably breathe easier that regulations such as Waters of the United States won’t move forward.

But will a Trump Administration be amenable to amending the Farm Bill to make changes to the Dairy MPP? The National Milk Producers Federation hopes to have some recommended changes by March, but where do you go from there? The biggest impediment to making MPP more effective is the budget.

As Scott Brown, an economist with the University of Missouri, points out: It’s hard to make $30 million in the dairy budget baseline provide meaningful insurance for a $40 billion industry. In contrast, USDA’s budget baseline for corn programs is $4 billion to protect $55 billion in annual cash receipts.

Then there’s immigration. Will a Trump Administration start rounding up 11 million undocumented workers? Will it build a wall? There will undoubtedly be some efforts made, but just how effective they will be is unknown.

And then there’s trade.  Most pundits say the Trans Pacific Partnership is dead. In the grand scheme of things, that’s maybe not a big deal since it would amount to a net benefit to dairy of just $150 to $300 million annually. Those aren’t big numbers for a $40 billion industry. But there were provisions in TPP that would have provided a good framework for future agreements. Those, too, are now out the window.

The bigger concern is the North America Free Trade Agreement (NAFTA). Mexico and Canada are two of our largest dairy trade partners. Scrap that agreement, as President-elect Trump as vowed to do, and the U.S. dairy industry could be in a world of hurt.

The only advice I can offer is that between now and Inauguration Day Jan. 20, revisit your risk management plan. Talk to your lender. How much working capital do you have? Are your credit lines replenished? Do you have other risk management plans in place above and beyond MPP?

Doing nothing--waiting to see what happens--is the riskiest position you can take.