Opinion: White House ag bailout will not spell relief

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One hardly knows where to begin commenting on USDA's $12 billion farm aid package designed to help farmers and ranchers financially blindsided by the POTUS's trade war with China.

The Market Facilitation Program is complicated but here are the highlights:

  1. MFP includes $4.77 billion in direct payments to farmers.  Soybean farmers get the lion share – $3.6 billion.  On the other hand, the total allotted to corn farmers is $95 million.
    Pork producers fair little better at just over $290 million.
    Beef producers get zero.
  2. Soybean farmers will receive $1.65 a bushel, wheat producers 14-cents a bushel and corn farmers 1-cent a bushel on half of their production.  Hog farmers get $8 a pig.  For row crops, the money will not be paid till after harvest.  And oh yeah, it's capped at a maximum of $125,000 a farmer.
  3. MFP includes what amounts to chump change for a whole range of other commodities.
  4. The aid package also includes $1.2 billion to buy commodities – notably pork and dairy – from farmers for distribution to food banks and $200 million to find new export markets.  More on that in a moment.
  5. Some very large-scale production operations potentially will be shut out of MFB because their average adjusted gross income from tax year 2014, 2015 or 2016 exceeded $900,000

Ok ... first the obvious.

Trade wars are generally ill-advisable.  There is almost always collateral damage.  The White House war with China over steel and aluminum has leaked bigly into the U.S. agricultural sector.    I estimate the China tit-for-tat has cost U.S. soybean farmers close to $2 a bushel and corn farmers somewhere between 30-cents and 40-cents a bushel.

We can quibble a little with the estimate, but the point is this: The Market Facilitation Program will not make many U.S. farmers whole for their losses.  Far from it.

Do the math.  Say a producer has 2,000 and averages 51.5 bushels an acre – USDA's most recent production estimate. At $1.65 a bushel, a soybean farmer would only get a $84,975 check from the government. (That's 103,000 bushels divided by two – farmers get reimbursed for only half of their production -  multiplied by$1.65 for a total of $84,975).

Better than a poke in the eye but still a loss.

That is unless our soybean farmer friend forward sold his soybeans before the beginning of the trade war with China when soybean prices were hovering around $10.50 a bushel.

After the Market Facilitation Program was announced, American Soybean Association president John Heisdorffer tried to put a happy spin on the bailout.

“This will provide a real shot in the arm for our growers, who have seen soybean prices fall by about $2.00 per bushel, or 20 percent, since events leading to the current tariff war with China began impacting markets in June.  This assistance will be particularly helpful to farmers who didn’t forward-contract their crop earlier this year and who need to arrange financing for planting next year’s crop”

But the American Soybean Association didn't let the Illinois Soybean Growers in on the talking point.  Illinois Soybean Growers Vice Chairman Doug Schroeder was blunt.

“As soybean producers head into harvest, we need access to markets from trade deals and a stable Farm Bill, not short-term aid packages.”

Some other points.  The Market Facilitation Program has created  a system of winners and losers.  When you put your money where your mouth is is easy to identify what's important.  Soybeans are king in this deal arguably to the detriment of other commodities.

The program is nothing more than a Band-Aid in what may be a multi-growing season conflict with China.  And that conflict is problematic for U.S. ag for a number of reasons.

First, if it drags on into the winter U.S. producers will have no idea of what crops to plant in 2019.

The trade war has distorted commodity future prices to such an extent that it will make planting decisions difficult.

Another problem?

The longer the trade war drags on the more likely that some U.S. agricultural producers will become permanent losers.  U.S. pork producers are most squarely in the cross hairs.

China's mega importer, China National Cereals, Oils and Foodstuffs Corporation, or COFCO, has bypassed on U.S. pork for Chile and is rapidly ramping up domestic production.

And China believes it can make do with fewer U.S. soybeans.

In the short term, given severe production soybean shortages in South American I would expect that China will have to come to the U.S. just to top off domestic supplies … say 15 million tons give or take.

And China will contract with Argentina for soybean oil, ironically crushed from U.S. soybeans.  If the trade war enters a second growing season, I expect China will do its best to avoid soybean and pork trade with the U.S.

 

About Dave Dickey

Dave Dickey

Dickey spent nearly 30 years at University of Illinois at Urbana-Champaign’s NPR member station WILL-AM 580 where he won a dozen Associated Press awards for his reporting. For 13 years, he directed Illinois Public Media’s agriculture programming. His weekly column for Big Ag Watch covers agriculture and related issues including politics, government, environment and labor. Email him at dave.dickey@investigatemidwest.org.

This column reflects the writer’s own opinions and not those of Big Ag Watch.

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