The latest version of the Trump administration’s trade assistance for farmers may provide some growers with more money than their actual losses from the ongoing trade war with China, but supporters of the aid package say it’s vital to helping many produces to survive until better times.
The payments will be especially valuable to producers who are struggling with a drop in prices since last year or who had trouble planting crops this spring, economists say. Many Midwest growers will still lose money this year, according to a new University of Illinois analysis.
Signup for the 2019 Market Facilitation Program began Monday, and interest has been brisk, according to Bill Northey, USDA’s undersecretary for farm production and conservation programs.
Some economic analyses suggest that the 2018 MFP may have overcompensated producers for the impact of China’s retaliatory tariffs, which was the stated purpose of the temporary program. Northey said the 2019 version is intended to compensate producers for both tariffs and non-tariff trade barriers going back a decade.
“If you talk to most producers and you see the impact of what trade losses were, most folks are going to say these are not too generous. In fact they may not capture all of the impact,” Northey told Agri-Pulse.
The 2019 payments are based on county rates that are supposed to take into account the impact of trade barriers on each eligible commodity the county has produced in recent years. USDA has not released the analysis behind the estimates of trade impact for each commodity. The 2018 payments were made based on rates for a limited number of commodities that were subject to China's retaliatory tariff that year.
USDA Undersecretary Bill Northey
A USDA spokesman said USDA’s Office of the Chief Economist is developing an explanation for the 2019 MFP payment formula which will be available in a few weeks.
“We had to balance simplicity with speed,” Northey said. “It is no perfect tool, but it certainly was an appropriate response to address and help these farmers bridge to the, I think, better times ahead with a better trading environment as well.”
For a map and analysis of the 2019 payment rates, click here.
The total 2019 trade package, including expanded MFP payments as well as commodity purchases and foreign market development funding, will total as much as $16 billion, up from the $12 billion provided for 2018.
Estimating the impact of China’s 25% retaliatory tariff, which was imposed in July 2018, has been challenging for economists.
The price of cotton has fallen by about 30 cents from a high of more than 90 cents a pound in June 2018, but only a drop of 5% to 8% can be directly linked to China's tariff, says Darren Hudson, an economist at Texas Tech University. Because of the tariff, U.S. cotton exporters had to lower prices to sell it to other markets. (Some of the cotton has gone to Vietnam, where it is processed in Chinese-owned mills.)
However, China’s retaliatory tariff also may have had an indirect impact on cotton prices by encouraging some farmers to plant cotton over soybeans this spring because the tariffs were dragging down soybean prices, Hudson said.
In any case, USDA estimates that cotton production will reach 22 million bales this year, up from 18.4 million in 2018, ultimately increasing U.S. and global stocks. Ending U.S. stocks for the 2019-2020 crop year are expected to balloon to 6.7 million bales, which would be the largest amount since 2007-2008.
With a decent crop this fall and continued sluggish economic demand, cotton prices may fall below 60 cents a pound in coming months, Hudson said.
A separate analysis focused on soybeans by Patrick Westhoff, director of the University of Missouri’s Food and Agricultural Policy Institute, estimated that net farm income would be $2.9 billion higher this year without the Chinese tariffs, and $3.9 billion higher in 2020 without them.
By comparison, soybean growers received nearly $7 billion in MFP payments under the 2018 program. Westhoff’s study didn’t estimate the tariff impact on soybeans for that year.
The 2018 MFP payments were based entirely on the impact of the tariff on sales to China and account for the partially offsetting impact of increased soybean exports to other markets, Westhoff said.
In Illinois, the MFP payments will soften farmers’ losses. For crops planted in Illinois, farmers are expected to lose $112 per acre on corn and $68 for soybeans even with the MFP payments, according to a University of Illinois analysis. Without the payments, farmers would lose an additional $65 an acre.
The 2019 payments are on average $21 an acre higher in Illinois than what farmers received under the 2018 program, according to the analysis.
For prevent plant acres, Illinois farmers are expected to lose $30 an acre on corn and $128 an acre on soybeans; the losses would be $15 an acre larger without the minimal MFP payments being made on prevent plant acres.
Gary Schnitkey, University of Illinois
“MFP payments will provide much needed cash flow for farms suffering from low prices as a result of trade disputes,” according to the analysis led by economist Gary Schnitkey.
Still, the MFP payments are coming under some criticism because of the amounts that some larger operations are receiving.
An analysis by the Environmental Working Group found that 82 farmers received more than $500,000 in payments under the 2018 program, with one operation in Missouri receiving $2.8 million. The top 1% of 2018 MFP recipients received an average of $181,331.
Sen. Charles Grassley, R-Iowa., told reporters Tuesday the analysis supports his longstanding argument for tightening payment limits. “The farm program is meant to help people over humps beyond their own control." Many large farmers "have the benefit of having resources of getting over those humps without government help.”
The 2019 payments will be capped at $250,000 per person or entity for payments on non-speciality crops, which include alfalfa, corn, soybeans, cotton, rice and wheat. There is a similar $250,000 cap on payments on milk and hogs and on specialty crops (nuts, cranberries, ginseng, sweet cherries, and table grapes), but total payments per person or entity from all three categories cannot exceed $500,000.
The 2019 payments will be delivered in three tranches, with the second and third dependent on whether there is a resolution in the trade war with China in coming months. The first round of checks is expected to total about $7 billion as producers will receive 50% of the total payment they are eligible for, or at least $15 an acre, whichever is greater.
Payments to farmers who farm in more than one county will be based on the rate in which county where the land is located.
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