Tariffs taking a toll on farmers and shareholders

• We expect Brazilian companies to benefit from the US - China trade war with JBS SA(JBSS3) and BRF SA(BRFS3) expected to share that benefit with their respective shareholders with the latter forecasted to resume dividend payments

• Midwestern banks dealing with farm loans have had to either cut dividends or barely maintain it; we expect County Bancorp (ICBK) and Farmers & Merchants Bancorp (FMAO) to maintain their dividend

• We expect companies with international footprint such as Deere & Co (DE) and Caterpillar (CAT) to survive the tariffs and maintain dividends as international demand for their products to offset the decline in domestic demand.

Regardless of the heated debates on the impact of the US-China trade war, one thing is for sure: it has made the lives of American farmers extraordinarily difficult. It has become yet one more blow, albeit a much heavier one, to the farmers and compounds on earlier intractable issues such as persistent lower prices for their crops, uncooperative weather, too much or too little rain, leading to unpredictable planting and now the trade war limiting their access to the vast Chinese market. The repercussions of the maelstrom are felt beyond the farms and spill over to businesses in the ecosystem of agribusinesses; banks that provide loans to the farmers, the manufacturing companies that sell farm equipment, food companies that buy produce/agricultural output and competing companies that aren't impacted by tariffs and therefore stand to profit from the pain of American farmers.

As a result of the widespread impact of the trade-war we begin with a roundup of the key players in the agricultural ecosystem and their coping mechanisms and an analysis of whether the trade war is impacting the pockets of the consumers first or that of shareholders. One of the lasting impacts of the trade war, even if the US and China sign a trade agreement tomorrow, is that China will make permanent the current list of alternative suppliers to reduce its reliance on the US and thus prevent a recurrence of the severe impacts of the current trade-war - in which case then no amount of short-term coping will do. Farmers and the companies in the agribusiness ecosystem will have to make long-term adjustments which are sure to negatively impact the US economy.

Impact of the trade war on the ecosystem of farmers

Corn and soybeans are the largest cash crops in the US, and China was a premier destination especially for soybean exports; China had been buying almost 25% of soybeans from the US. This all but dried up in the last year when the Chinese imposed a 25% retaliatory tariff on soybeans imported from the US leading to a precipitous drop in income for farmers from almost $20bn in FY'17 to a little over $9bn in 2018. The other export to China, a minor one in comparison to soybeans, is pork. Chinese farmers are dealing with a breakout of African Swine Fever (ASF) which has led to the loss of hundreds of millions of pigs. As Chinese authorities struggle to keep the fever under control, pork prices have skyrocketed, thus providing American exporters a golden opportunity to benefit even as the trade war rages on.

To access the report please contact dividendsupport@ihsmarkit.com

Amira Abdulkadir Product Analysis and Design Manager

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.