How close are we to a trade deal with China? US Agriculture Secretary Sonny Perdue appears hopeful, but nonetheless the “second tranche” of aid is set to go out in the near future. Perdue is optimistic enough that he’s saying that the last installment of aid for this year may not be necessary. What’s left to work out, and what can US farmers expect?
David J. Lynch and Gerry Shih of the Washington Post recently revealed the latest progress made on the US and China trade deal. It feels like we’ve been down this road many times before over the past year, only to reach a dead-end. How is this time different?
It might not be. Supposedly the two sides have reached an “agreement in principle,” but US and Chinese negotiators still have to work out many important, “core” issues before a deal can be drafted for Chinese President Xi Jinping and US President Donald Trump to sign. It does appear, however, that the two sides have agreed to remove some of the tariffs that have disrupted trans-Pacific commerce over the past year.
That’s good news. There’s talk of a deal being signed early next month, so what’s left to figure out? Will the US roll back tariffs on Chinese imports? Will China pledge to protect intellectual property? What about protecting the trade secrets of US companies?
Chinese negotiators appear to be pushing for additional concessions, even though last month President Trump called off the tariff increases on Chinese goods. Trump will probably also drop additional levies scheduled to take effect in December on various electronic goods. Despite those concessions, the Chinese also want Trump to drop the 15 percent tariff that was imposed in September.
Right now, Trump is asking for additional intellectual property safeguards.
Perdue is Saying a Deal is Close
In addition to the items listed above, increased agriculture trade is also anticipated to be part of a Chinese trade deal. US Agriculture Secretary Sonny Perdue is hopeful that there will be no need for trade aid payments next year, because trade will be occurring. The Fence Post reported that Perdue believes the optimal solution to all of this would be for improved negotiations with China and increased export sales- not aid. It’s a consistent wish by many and Perdue repeats the common phrase: US farmers “would rather have trade than aid.”
Unfortunately for him, it’s not a wish that is going to be granted- at least this month. Perdue announced this week that the second installment of Market Facilitation Program (MFP) payments, or trade aid, are set to go out soon.
“We just have gotten authorization on the second tranche,” Perdue said.
That means qualifying farmers can expect their MFP payments later this month or in early December. For many farmers who are barley hanging on, the aid most certainly comes as welcome relief.
Cost of the MFP
Jacqui Fatka of Feedstuffs provided some useful background on the cost of the MFP. When the initial aid package was announced for 2019, $14.5 billion in trade aid payments were pledged for farmers. So far according to USDA totals, $6.687 billion has been paid out. The remainder will come in a second and possibly a third installment.
Last year, MFP payments totaled $8.6 billion.
The final installment of trade aid may or may not go out, depending on what kind of trade deal can be struck with China. If it’s favorable, the last installment might not be necessary. Perdue is optimistic.
“The numbers we’re talking about right now are very helpful and would supplant any need for aid in 2020,” Perdue said.
Producers have until Dec. 6, 2019 to sign up for MFP aid this year.
What About a Third Tranche?
Mark Dorenkamp of Brownfield Ag News spoke with Undersecretary Bill Northey at the Minnesota AgriGrowth Food and Ag Summit about what farmers can expect in this next round of trade aid. It sounds like there is a possibility of another MFP payment in early 2020, but that will depend on the trade deal that can be struck with China. Right now it appears the USDA will be waiting it out to see what happens.
“And we’ll evaluate what the situation is at that time. Hopefully we’ll have a signed agreement with China at that time, and then we’ll see. Whether that’s delayed for those purchases or whether some of those purchases are starting to happen.”
Farm Journal Washington correspondent Jim Wiesemeyer reported on the planned MFP payment, and says that this second installment will total $3.625 billion. A third installment totaling the same amount could go out in early 2020.
Right now it doesn’t appear to be possible to accelerate that third MFP payment, as the USDA is having cash flow problems of their own. MFP isn’t structured to help with disaster, it’s meant to deal with trade. They have a funding schedule that is difficult to disrupt, and it’s not likely that the third payment would be moved forward.
Farm Liquidity in Iowa on a Downtrend
Rod Swoboda of Wallaces Farmer says that without the Market Facilitation Program (MFP) payments, farm liquidity is on a downtrend- especially in Iowa. That’s been the case for the past several years, but a new survey conducted by the Iowa State University extension has confirmed that the percentage of farms with “vulnerable liquidity” is increasing- almost 13% since 2014. Results and analysis of the study is available in ISU’s October 2019 Ag Decision Maker Newsletter.
Head of the study, Alejandro Plastina, says that farm liquidity improved slightly in 2018, but that was due to MFP payments. Long term, farm liquidity in Iowa has been in significant decline.
“While liquidity improved slightly in 2018 due mostly to the MFP payments, the cumulative loss in working capital since 2014 has averaged $189 per acre across the farms in my study,” Plastina says. And given the difficult growing season of this year, he expects 2019 financial numbers to be poor, as well.
“A massive number of delayed and prevented planting acres, low crop prices, reduced demand from biofuel refineries, and trade uncertainties in 2019 present a challenging liquidity scenario for farmers in Iowa,” Plastina notes. “A new round of MFP payments will certainly help mitigate liquidity gaps this year, but the question remains on the sustainability of these payments through time. How long can the federal government keep providing these payments?”
The longer the trade war with China lasts, the harder it’s getting for many farmers to get by. Farm liquidity, especially in Iowa is in decline, and this second installment of aid is welcome relief. Depending on what happens with regard to a trade deal, the third installment for trade relief may or may not be issued. If eligible farmers have applied, they can expect the next aid payment to arrive in late November or December.