USDA Will Spend up to $12B on Farm Trade Disruption

What is known about the government’s farm-related response to retaliatory tariffs.

If you have missed the press release from Secretary Perdue announcing our president’s farm-related response to retaliatory tariffs, it is at “USDA Assists Farmers Impacted by Unjustified Retaliation.

What is known for certain at this time is that USDA will use the following programs to assist farmers:

 

  • The Market Facilitation Program, authorized under The Commodity Credit Corporation (CCC) Charter Act and administered by Farm Service Agency (FSA), will provide payments incrementally to producers of soybeans, sorghum, corn, wheat, cotton, dairy, and hogs. This support will help farmers manage disrupted markets, deal with surplus commodities, and expand and develop new markets at home and abroad.
  • Additionally, USDA will use CCC Charter Act and other authorities to implement a Food Purchase and Distribution Program through the Agricultural Marketing Service to purchase unexpected surplus of affected commodities such as fruits, nuts, rice, legumes, beef, pork and milk for distribution to food banks and other nutrition programs.
  • Finally, the CCC will use its Charter Act authority for a Trade Promotion Program administered by the Foreign Agriculture Service (FAS) in conjunction with the private sector to assist in developing new export markets for our farm products.

Our state and county FSA offices have nothing more to add. Enough time has not yet passed for the guidelines, policies, plans, software, training and such to even have been developed, let alone explained to farmers and the aid delivered. Sure, somebody knows more than the above. However, my perspective is that there is so much that has to be decided, developed, and delivered that any additional information is of little use if the objective of a farmer is to plan for the future.

 

Langemeier and Boehlje use base corn and soybean prices of $3.80 and $9.25 per bushel on an example farm in Indiana as they explore the impacts of dramatically lower commodity prices since a trade skirmish became imminent. This farm is projecting earnings for a corn/soybean rotation at a loss of $84 per acre, which is approximately $50 per acre lower than estimates in late May.

Langemeier and Boehlje summarize there are two issues related to the farm safety net we are currently facing:

  1. Any ARC-CO and crop insurance indemnity payments only offset a portion of the drop in earnings
  2. The decline in the crop insurance revenue guarantee since 2012 has contributed to the large decline in the case farm’s ability to mitigate downside risk.

As an additional program, I wonder how these evolving aid programs will impact downside risk?

I’ll add

  • Stories we can all tell about previous aid deals
  • Support is useful, but we cannot expect to be made whole
  • History lessons of past food trade disruptions including:

– Cost-of-goods increases for production and manufacture
– Consumer pays higher prices
– Export market share losses are not recovered
– Little agreement on if the opponent was subdued or goals achieved

Some things I consider

  • China is second ranked U.S. ag importer currently taking roughly $20B in products annually. This is up from $8B in 2007 and down from $26B a few years past.
  • $395B is the total annual ag sales in the U.S.

-$12B in aid represents 3% of total annual ag value in the U.S.

  • Between 2000 and 2017 U.S. ag export to China rose 700%
  • A rather large U.S. 2018 crop of soybeans is possible.
  • South America is reaping rewards and may be expected to up acreage when they go to their fields soon to plant their primary crops.

If you get USDA, FSA information, you will be updated on aid program details as they become available. It is way too early to try to figure it out. There is nothing to use to figure with except the big number of $12B. Asking other people probably won’t get an accurate answer. There are no public details as of Monday, August 6, 2018, 4:25PM. I called USDA, FSA and asked them. Figured they would know.

As we approach a mid-term election I expect sufficient details will be known before November, 2018.

Sources

Langemeier, M. and M. Boehlje. “Farm Safety Net for 2018.” farmdoc daily (8):139, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 27, 2018.

United States Department of Agriculture Foreign Agricultural Service

USDA, NASS, 2012 ag census

USDA, FSA