Newsom on the Market

By Darin Newsom
DTN Senior Analyst

This is one of those weeks where I had a number of ideas for a column topic. VSR for HRW Wheat: Bad for wheat farmers, bottom line. One of These Things Doesn't Belong: A recap of my talk this week to a USDA group consisting of university ag econ professors, their grad students, and government economists and statisticians. After NAFTA: A late entry discussing Wednesday's initial word from the White House that the trade agreement would be terminated.

As it turned out, the last one was the topic, but not for the reason I thought it would be. This is a column I thought I would never write. There isn't enough bourbon in Kentucky to make me understand what I'm about to say, but here goes.

If what just happened with NAFTA is what it looks like, it could ... (I had to pause here to collect my thoughts) ... set the course for Donald Trump to go down in history as one of the greatest U.S. presidents of all time.

Pardon me while I go refill my glass. No ice necessary.

I have never been a fan of Donald Trump, knowing him as we all have for three decades or more. I didn't vote for him, do not believe a word he says, and obviously have never read his book "The Art of the Deal." But, my old Poli-Sci senses (yes, that's my degree from good ol' Fort Hays State University) are telling me we are witnessing the dawn of something ... not necessarily new, but certainly different, in U.S. politics.

The U.S. is now one of Trump's businesses, in a portfolio alongside his Towers, Hotels, and Resorts, including the new Camp David, Mar-a-Lago. Any, and I mean any, doubt about this from even the president's most ardent critics had to be laid to rest with his handling of the North American Free Trade Agreement this week.

Let's set the table. NAFTA was signed into existence in late 1992 by President George H.W. Bush and was initiated on Jan. 1, 1994, under President Bill Clinton. Since then, certain aspects of U.S. industry, including agriculture, have benefited greatly from the trade agreement while others (reportedly auto, metals, etc.) have suffered. NAFTA was a key talking point during the two-year campaign leading up to the 2016 U.S. presidential election, with then-candidate Trump often stating he would force a renegotiation of the trade agreement almost immediately upon taking office.

This, as well as the dismantling of other trade agreements, was and has been a concern of mine during the campaign and post-election. At a time when the U.S. is buried by surplus grain supplies, it seemed foolish to threaten demand with most of our top-five agricultural trade partners.

But, a funny thing happened on the way to ruin: Export sales and shipments, mostly of corn and soybeans, have continued to run well above what USDA has forced itself to project. And, what once looked like preemptive buying from Mexico, China, etc., now feels like real, sustainable strength in the export market.

With this past week possibly being the key.

More than once in its brief 100 first days, this administration has shown it intends to follow not necessarily the U.S. Constitution, but President Trump's 11-step formula for business success. A side note here: As I said earlier, I have not read his book but plan on it now, with this list pulled from the less-than-100%-credible Wikipedia site. Anyway, onward we go.

Last weekend's dealings with the North Korean Nut-Job exemplified Trump's Step 2 (protect the downside and the upside will take care of itself); Step 5 (use your leverage); and Step 7 (get the word out, probably the president's most-followed step).

Here's what looks to have happened with NAFTA this week: After a new secretary of ag, a positive for agriculture, was sworn in and an executive order was written proclaiming how important agriculture is to the United States, word seeped out of the White House (Step 7 again) that the U.S. would "terminate" NAFTA. Commodity groups quickly scrambled to decry this pronouncement, farmers stated they were questioning their political party leanings, and social media blew up.

But more importantly, according to President Trump, the president of Mexico and prime minister of Canada both immediately called him, wanting to renegotiate instead of terminate: Steps 3 (maximize your options); Step 4 (know your market); and Step 5 (leverage, again), at the very least.

A Twitter friend of mine asked a great question: What impact do policy uncertainties or constantly changing policies have on businesses?

My answer, and I'm sure there are many others out there, is that U.S. businesses have to accept the fact they are but chips in a high-stakes game of liars poker. While this has been true for decades, there is no facade covering it now. President Trump doesn't believe himself to be confined by political polices and rules, but rather follows the big risk/big reward of big business. This makes it more difficult for businesses down the ladder in the U.S., spending the next four years sweating out each day's game of Rumor Roulette. But, and this I believe is important, President Trump plays from a position of a stronger hand than anyone else, allowing him to maximize his leverage, hopefully to the betterment of U.S. business as a whole.

At least until the players on the other side of the table are Russia and China. Then we will see how well the 11 steps of the Art of the Deal really work.

Darin Newsom can be reached at darin.newsom@dtn.com

Follow him on Twitter @DarinNewsom

(CZ/SK/ES)

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