On Wednesday, the Federal Reserve Board released its January 2021 Beige Book update, a summary of commentary on current economic conditions by Federal Reserve District. The report included several observations pertaining to the U.S. agricultural economy.
Following Wednesday’s appearance before the House Agriculture Committee, Secretary of Agriculture Sonny Perdue testified on Thursday before the Senate Agriculture Committee at a hearing titled, “Implementing the Agriculture Improvement Act of 2018.” A variety of topics were discussed at the meeting, today’s update highlights some of these issues including: Trade, and Farm Bill payment limits.
During his opening remarks, Committee Chairman Pat Roberts (R, Kans.) stated that, “Over the past five years, prices for many of our major commodities have dropped significantly. As a result, net farm income is expected to decline by approximately 50 percent.
The ongoing pressure of low commodity prices continues the need for a high volume of sales. Now more than ever, producers need certainty and predictability on the trade front, on the policy front, and on the regulatory front.
Ranking Member Debbie Stabenow (D., Mich.) pointed out in her opening remarks that in the 2018 Farm Bill, “We made strong investments in rural America, including expanding high-speed internet and re-establishing the Under Secretary for Rural Development. I look forward to the quick nomination of a qualified candidate.
“We also expanded access to risk management tools like crop insurance. This will ensure that all farmers—no matter what they grow, or where they grow it—can protect their livelihoods.”
After reiterating some of points he made on Wednesday about the state of the agricultural economy, Sec. Perdue noted in his prepared remarks Thursday that, “I want to assure you that USDA is implementing the Farm Bill as quickly as possible. Deputy Secretary Stephen Censky is leading implementation efforts within the Department, following a process similar to one put in place by USDA to implement the 2014 Farm Bill.”
Trade: China, and Japan
During the discussion portion of Thursday’s meeting, Chairman Roberts stated that, “[Trade] continues to be a top concern for our producers who’re currently having conversations with their lenders and facing tough decisions on which crops they’re going to plant this spring.”
The Kansas Republican added: “I am pleased to hear progress has been made with China. I hope that continues,” but queried: “While tariffs are in place, our producers will not be able to realize the full market potential. My question is, what would you tell producers as they make these choices, in light of the current trade environment?”
Sec. Perdue stated that, “I think while farmers are thought to be farmers, they are also very smart business people. And they’re used to looking at these markets. Last year the President authorized a market facilitation program because their plans were uprooted by the trade disruptions we saw in 2018. I think again, the best advice I could give these farmers is to do what they’ve always done. Look at market signals, and look at their own production schemes over where they think they can become the most profitable. Or maybe in this environment, lose the least- in order to be successful.
“So I don’t think, while we do as well hope that these conclusions can come to the trade disruptions, I’m cautiously optimistic, but it’s never over until it’s over with our negotiators and our opponents in this regard. And I think the advice would be to look at the markets currently, work out your input cost, and see if there is a way to make a profit for this year, and plant those crops.”
And Illinois Senator Dick Durbin pointed out that,
Illinois is proud to be the largest agricultural producer of soybeans in the United States. Since President Trump took office, the price of a bushel of soybeans has gone down $1.
“We believe that the trade policy of the administration could threaten the progress we’ve made in establishing customers around the world. I hear that from my soybean growers all the time. What would you tell them?”
Sec. Perdue explained that, “Tell them that they are in the long-term game. They obviously understand the volatility of prices. Many people like to attribute a cause and effect over trade. Certainly the market facilitation program supported what we were able to determine and calculate to be the trade disruption damage for those soybean producers. We hope that the purchases that China just announced can be more, and hopefully we can have a resolution of the trade where we think their prices will be better.”
Ag products are a net export for our economy. We’re encouraged by recent trade developments w/ China committing to purchase 10 million metric tons of soybeans & are hopeful a deal on tariffs can soon be reached w/ Canada & Mexico to clear the way for the USMCA. #NDag @SenateAgGOP pic.twitter.com/Zh5rXPedbZ— Senator John Hoeven (@SenJohnHoeven) February 28, 2019
In addition, in response to a question from Sen. Mike Braun (R., Ind.), Sec. Perdue stated that, “We’re seeing there’s some down revenue because of relatively good growing seasons worldwide, not just in our area but world wide for the last four or five years, since they peaked in ’13. I think we’re going to see an upturn. The potential for trade, and the potential for selling more products is always necessary. And I think farmers, my opinion is we’ve seen the low. That doesn’t mean we’re going to bounce back up, but I think we’ve seen the low in the spread, the delta between the input cost and the revenue and the commodity prices.”
Meanwhile, Sen. John Boozman (R., Ark.) noted on Thursday that, “One of my concerns is that we work so hard in that area [China] that we forget about places like Japan. Which is so, so very important to the beef industry, the pig industry and things like that. Can you talk a little bit about that, and how the, you know the tariffs now are making it such that we’re starting to lose market shares that we worked so hard to get- to other places.”
“The threat is real,” Sec. Perdue said in response. Adding that, “Obviously TPP [the Trans Pacific Partnership] will begin to be implemented this spring. Ambassador Lighthizer and I had several conversations about the disadvantage that puts our American producers and exporters regarding Japan. I think the good news is, he’s very much aware of that. His strategy is to really do an FTA with Japan, dealing with agricultural issues. The goal being certainly to be equivalent or plus TPP provisions in agriculture. It would put us at even stead with any other nation in the world.
“Japan’s a huge market, typically in the top five. I’ll be going there late spring, I think in May, for the G20 Agricultural Ministerial. We plan to make that a sales trip as well. So while most of the attention and press has been on China, Japan is right underneath the surface as far as a necessary sales destination.”
Trade: USMCA (Section 232 Tariffs)
Reuters writer Humeyra Pamuk reported on Thursday that, “U.S. Agriculture Secretary Sonny Perdue said on Thursday he is working hard to persuade President Donald Trump that the U.S. steel industry can be adequately protected by tariff rate quotas, rather than plain tariffs, on imports from Canada and Mexico.
“The three North American countries on Nov. 30 signed the United States-Mexico-Canada Agreement (USMCA) pact to replace the North American Free Trade Agreement (NAFTA), which governs more than $1.2 trillion in trade.
U.S. farmers – hardest hit by Trump’s trade wars with China, a key buyer of American agricultural products, as well as Mexico and Canada – have long complained that with tariffs remaining in place, they will not be able to benefit fully from the new trade deal.
The Reuters article noted that, “When asked at a U.S. Senate Agriculture Committee hearing about removal of the ‘Section 232’ steel and aluminum tariffs – and retaliatory tariffs on U.S. farm products – Perdue said: ‘The president, we’re working hard to persuade him that the steel industry here, which is concerned, can be protected through a TRQ program here rather than tariffs and release the retaliatory tariffs.’
“Tariff rate quotas can allow a specified amount of product to enter the United States duty free, while applying a tariff on quantities above that quota level. South Korea has agreed to a quota equal to about 70 percent of its steel exports to the United States in 2017.”
Farm Bill Payment Limits
Iowa GOP Senator Chuck Grassley addressed the issue of Farm Bill payment limits during his remarks Thursday.
Specifically, Sen. Grassley pointed out that, “And this is the payment limitation issue that I’m talking about.
Because the 2018 farm bill we passed last year created this goofy new loopholes for large farmers to extort taxpayers for more subsidies.
“Everyone who really farms has no problem with his or her eligibility for farm subsidies. So no farmer would, if you’re actually farming, you aren’t going to have any problems.”
Sen. Grassley indicated that, “Just so everyone here is clear on how much money one non-farmer who still qualifies can receive each year from the taxpayers. An individual, $125,000, married couple, $250,000. Now this is what’s worse in this farm bill. The new farm bill even enlarged that existing loophole to expand the definition of family to include first cousins, nieces, nephews.
Imagine the outcry, probably by some of the members who support loopholes for farmers, if a food stamp recipient could claim an extra $1,000 a year for extended family members who do not themselves need food stamps.
“Plain and simple, this new loophole will allow large farmers to milk taxpayers for even more, by claiming their niece or nephew, who may live on the opposite side of the country, and have nothing to do with the farm, is a farmer who deserves $125,000 a year of free money. That’s a slap in the face to the real farmers who sweat and manage their farms honestly, and the taxpayers who are on the hook for these payments.”