Trump Administration Announces Additional Trade Aid to Farmers

Wall Street Journal writer Josh Zumbrun reported on Thursday that, “The Trump administration said it would spend $16 billion to offset the impact on American agriculture from the trade conflict with China, with most of the money taking the form of direct payments to U.S. farmers.

“The move Thursday followed a breakdown in talks earlier this month between Washington and Beijing. Amid expectations that American farmers will be hindered selling crops to China’s 1.4 billion-person market, commodity prices, which were already mired in a years-long slump, sank further to their lowest level in more than 10 years.”

Mr. Zumbrun noted that, “The announcement marks the second move in the past week by the administration to soften the blow on U.S. farmers from trade-conflict impacts.

“On Friday, the Trump administration struck a deal with Canada and Mexico, in which the U.S. agreed to drop the steel and aluminum tariffs imposed a year ago. In exchange, Canada and Mexico dropped their retaliatory tariffs on about $15 billion of U.S. goods, which had fallen heavily on agriculture.”

The Journal article added that, “In last year’s [trade aid] program, farmers received a differing payment for different crops. Under this year’s program, the money will be distributed based on USDA’s estimate of the economic damage inflicted on different counties. The payment will differ county-by-county and will be based on the number of acres planted, not the specific crop.”

More specifically, in a conference call with reporters on Thursday, USDA Chief Economist Rob Johansson explained that, “So the model that we used to develop the trade damages is the same model as we used last year. Again we’re comparing the difference in trade with the tariffs on our exports to trade without those tariffs. But we are looking back a number of years to look at what China has purchased from us in the past and we are bringing that into our baseline for applying those tariffs to. So that does get us to a slightly larger number than we had last year, which is reflected in the $16 billion level the Secretary mentioned, as opposed to the $12 billion level which we had last year.”

Dr. Johansson noted that “we are going to put that into three different types of programs,” a market facilitation program, a food purchase and distribution program component, and an agricultural trade promotion program.

Bill Northey, USDA Undersecretary for Farm Production and Conservation, pointed out in the conference call that, “We divide [the market facilitation program] pool of funds into kind of, again, three different buckets here. We have specialty crops, a list of those that will get payments. We have some non-specialty crops, as we think of our grain and oil seeds, that will get payments. And then dairy and pork producers as well.”

Referring to the market facilitation program, Undersecretary Northey indicated that, “So these payments are not designed to be a market loss payment. They are a market facilitation payment. It’s not going to perfectly reflect what some producers feel the loss of these markets have been.”

He added that the market facilitation program represents $14.5 billion of the $16 billion total aid package.

Undersecretary Northey also noted that,

Obviously we’re a different time of year than what last year’s program was. Last year we looked at total production. This year we’re still in a place where some producers are making planting decisions, and we need to make sure that folks have the complete flexibility in this challenging planting season to plant what works for them. They need to make the best economic decision. That economic decision will not be impacted by the payment that they receive, depending on which production they choose.

And, a news release from USDA, which provided additional details of the trade aid program, stated that, “Producers of alfalfa hay, barley, canola, corn, crambe, dry peas, extra-long staple cotton, flaxseed, lentils, long grain and medium grain rice, mustard seed, dried beans, oats, peanuts, rapeseed, safflower, sesame seed, small and large chickpeas, sorghum, soybeans, sunflower seed, temperate japonica rice, upland cotton, and wheat will receive a payment based on a single county rate multiplied by a farm’s total plantings to those crops in aggregate in 2019. Those per acre payments are not dependent on which of those crops are planted in 2019, and therefore will not distort planting decisions. Moreover, total payment-eligible plantings cannot exceed total 2018 plantings.”

During Thursday’s conference call, Dr. Johannson noted in response to a question that,

You will not receive payments if you do not plant, so the payments are based on reported plantings at the county office.

On the issue of timing, Undersecretary Northey stated in the call that, “These payments will come out at three different times during the year. We’re looking at a first payment coming out in July or August. We’re looking at a second payment maybe late fall, maybe November. We’re looking at a third payment that may be into early 2020 by the time that third payment is made. Fourth, as the Secretary said, we plan and hope to be able to have a trade agreement well before those second and third payments are made. We know we’ll make the first payment. The second and third payment will depend on whether we still have damage to our producers or we’re able to be celebrating a new trade agreement for those, not only those commodities that are negatively impacted, but those commodities that have some opportunity with the new trade deal as well.”

DTN Ag Policy Editor Chris Clayton reported on Thursday that,

USDA officials said Thursday the Trump administration’s new $16 billion trade-aid package will not distort planting decisions, but farmers will have to plant a crop this spring to be eligible for payments.

“Based on the last USDA NASS Crop Progress report, more than 47 million acres of corn and roughly 67 million acres of soybeans still needed planting. Both crops are way behind their normal planted acres by this time in the spring,” the DTN article said.

Earlier this week, before Thursday’s trade aid announcement, Wall Street Journal writer Kirk Maltais reported that, “American farmers, hampered by cold, wet weather across the Midwest and grappling with the fallout of the U.S.-China trade standoff, are looking at taking insurance payouts instead of planting their crops—which may take a large bite out of next year’s U.S. agricultural supplies.

“Many farmers take out crop insurance each year that includes a prevent-planting clause, which promises modest payouts if the seeds can’t be sown. While these payments don’t fully replace the income farmers would receive from selling their crops, they do provide farmers with an incentive not to plant muddy fields with soybeans and grains that might garner low prices at harvest time.”

The Journal article explained that, “Farmers have limited time to decide, as they will only receive the full payout if they are unable to plant before the final planting date established by the USDA, after which the payout drops each day.

“For corn, the final planting date has already passed for some southern areas of Kansas and Missouri. For most counties in Kansas, Nebraska and the Dakotas, the final date is May 25, while the majority of Minnesota and Wisconsin, as well as all of Iowa, has until May 31.”

Bloomberg writers Mike Dorning, Isis Almeida, and Michael Hirtzer reported on Thursday that, “Futures for corn, soy and wheat each dropped from earlier gains after the [USDA] conference call, with Chicago corn declining by as much as 1.9% to $3.87 a bushel. Analysts cited concerns the plan could prompt farmers to plant more even as stockpiles of crops remain huge in part because of the trade war.”

The Bloomberg writers added that, “Agriculture Secretary Sonny Perdue said on the conference call that the administration had designed this year’s aid program to avoid distorting farmers’ production decisions. Under the new program, aid for most crops will be calculated based on what is grown in their county rather than just individual farmers’ plantings.

“But Lindsay Greiner, president of the Iowa Soybean Association, cast doubt on the assurance, saying the announcement ‘could very well bump planted soybean acres and thus production, almost assuring that the pile of soybeans will not be reduced.'”

And Reuters writer Humeyra Pamuk reported on Thursday that, “The county-based mechanism for the aid payments have triggered a heated debate on whether it would impact planting decisions. Some analysts said the trade aid package could encourage farmers to try to seed their crops in order to qualify for the relief despite overly wet fields that have stalled planting this spring.

“Jim Hefner, an Ohio farmer who has not been able to start planting due to heavy rain, said the plan could cause him to alter his initial acreage plans, however.

“‘I guess we would make more of an effort to get something planted,’ Hefner said. ‘We may forgo corn and plant soybeans.'”

Meanwhile, a farmdoc daily article from Thursday explained that, “An additional consideration on [2019 corn] acreage is the fact that payments associated with the new Market Facilitation Payment (MFP) program are in flux.  The program was announced today but payment rates are unknown as well as the exact formula for computing payments for eligible acres.  As announced, the payments are coupled to planting acreage in 2019, which could possibly skew incentives towards planting corn compared to taking prevent plant.  However, the U.S. Senate also passed a new disaster assistance bill today that allows prevent plant acreage to be eligible for special disaster assistance payments in addition to a prevent plant payment.  There is considerable uncertainty with respect to how this will impact planting and prevent plant decisions for corn and the bill still must be approved by the House Representatives and signed into law by President Trump.    Still, we argue that it is reasonable to expect that disaster payments for prevent plant will roughly balance MFP payments for planted acreage.  This appears to be the clear intention of the Senate bill.  If this is the case, then current policy incentives will be a wash as far as prevent plant versus planted acreage is concerned in 2019.”