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Will $12B Emergency Relief Help U.S. Agricultural Sector?

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On Jul 24, the Trump administration announced that it will provide $12 billion emergency aid to help American farmers who have been hurt by retaliatory tariffs. The announcement saw U.S. agricultural goods stocks jump on Tuesday. However, Trump’s decision wasn’t welcomed by farm-state Republicans, who argued that farmers want markets for their crops and not compensation for lost sales.

The trade war has been taking a toll on a number of U.S. goods with agricultural products being one of the biggest sufferers. The Agriculture Department’s decision comes months before the November elections, as many political analysts are of the opinion that Republican senators in the rural belt of the United States could witness a backlash because of Trump’s hard trade policies.

Temporary Relief for Farmers

The $12-billion emergency relief announced to assist American farmers is in line with $11 billion of loss suffered due to retaliatory tariffs. This surely will bring some relief to farmers. Agriculture Secretary Sonny Perdue said, “This is a short-term solution that will give President Trump and his administration the time to work on long-term trade deals.”

Undoubtedly, the relief is temporary, as the decision comes months before the November election, which many believe could result in Republicans losing House and Senate seats in rural America, because of Trump’s trade spat with trading partners.

Trump Draws Criticism

The rural belt in America particularly the Midwest was largely responsible for Trump’s election victory in 2016. In fact, Trump defeated Hilary Clinton by more than 9 percentage points in Iowa, winning 51% votes. Trump in order to keep his election promise of helping U.S. farmers and the manufacturing sector slapped tariffs on China to protect domestic business.

However, the retaliatory tariffs by China saw a number of U.S. agriculture products like soybean, sorghum, a wide range of fruits, nuts and poultry products taking hit.

The $12-billion emergency relief now has drawn sharp criticism, including from some farm-state Republicans, who said that tariffs are simply taxes and that such an action would not be of much help, as farmers want markets for their crops. Understandably, the decision is being viewed as a short-term bailout while farmers are looking for long-term stability.

Agricultural Goods’ Stocks Jump on Trump’s Announcement

At a time when farmers continue to suffer because of the retaliatory tariffs, the $12-billion emergency relief has brought a temporary sigh of relief to agricultural stocks. The announcement gave a boost to the agricultural sector, which saw agriculture stocks jumping on Jul 24. Shares of CF Industries Holdings, Inc. (CF - Free Report) , FMC Corporation (FMC - Free Report) and AGCO Corporation (AGCO - Free Report) jumped 0.6% each.

Shares of Caterpillar, Inc. (CAT - Free Report) and Deere & Company (DE - Free Report) rose 1.2% and 3.2%, respectively. Shares of The Mosaic Company (MOS - Free Report) and Titan International, Inc. gained 2.3%, and 0.9%, respectively, while Archer-Daniels-Midland Company (ADM) rose 0.2%. The Mosaic Company has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Trade Continues to Suffer

China’s $34 billion retaliatory tariffs targets a number of agriculture goods produced in states that had supported Trump in the 2016 elections. The temporary relief is likely to benefit soybean producers the most. That said, soybean prices have fallen almost 20% since March owing to tariffs.

Apart from soybeans, commodity prices of sorghum, pork, corn, wheat and a wide range of fruits and nuts too have declined. The United States exported $138 billion in agriculture products last year. This includes $21.5 billion worth of soybeans, with China alone importing $12.3 billion of the crop. Understandably, the $12-billion relief is just a stopgap measure at a time when farmers are looking for long-term stability.

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