Milling & Baking News - November 22, 2016 - 10

Business X

Rabobank considers short- and long-term
implications of Trump presidency
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 shortterm 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
10 / November 22, 2016 XMilling & Baking News

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

Trump

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 farreaching 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 Mexico and 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." MBN
bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - November 22, 2016

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