A compelling case has been made by many that the U.S. agriculture economy has suffered greatly from retaliatory trade tariffs. Therefore, the President and USDA agriculture secretary promised to make it rain for U.S. farmers who found themselves on the ‘tip of the trade spear’. On Monday the details of this plan were revealed. This article will outline the plan details as covered by various media outlets. Moreover, Ag Nook will share which three commodity groups were the clear “winners” in the $4.7 billion cash payment bonanza.
A Reuters story on Yahoo offered this headline, “U.S. Government to Pay $4.7 Billion in Tariff-related Aid to Farmers” on today’s announcement. The USDA will payout $4.7 billion in direct payments to U.S. farmers of these seven commodities: Soybeans, Corn, Cotton, Wheat, Sorghum, Pork, and Dairy. Additional payments may be made in the future according to a quote from Agriculture Secretary Sonny Perdue.
“An announcement about further payments will be made in the coming months if warranted.”
Nicole Heslip of Brownfield Ag News wrote a piece titled, “USDA Announces Details of Trade Relief Package”. Heslip quoted Sec. Perdue when he offered an explanation for why these direct payments were important and deserved by U.S. farmers.
“It’s a fact they [U.S. farmers] cannot pay their bills with simple patriotism. The programs that we’re announcing today will allow time for the President to strike long-lasting trade deals that benefit our entire economy.”
The $4.7 billion in funds available for direct payment are divided this way by commodity group.
- Soybeans – $3.6 billion
- Pork – $290 million
- Cotton – $277 million
- Sorghum – $156 million
- Dairy – $127 million
- Wheat – $119 million
- Corn – $99 million
Payments to farmers are capped at $125k per person or legal entity. Also the adjusted gross income must be below $900k last year. Payments could begin as early as mid-September.
Commodity Purchase & Market Development
Chris Clayton of DTNPF offered an effective summary of the other two parts of the trade aid program. Clayton’s post is titled, “Farmer Trade Aid Detailed”.
The second part is the Food Purchase and Distribution Program. The USDA will buy $1.2 billion in commodities. The purchases will occur in the coming months at four different phases. Nearly half of these funds ($559 million) will be used for pork purchases. Dairy, Apples, and specialty crops will account for the remainder.
Lastly, the third part of the plan announced was $200 million in new money added to Foreign Market Development for existing and new foreign trade markets. These funds will be allocated as similar current programs operate. Commodity check-offs and companies seek funds via a proposal process.
3 Commodities “Win”
It is difficult to say any commodities “win” in the current environment as farmers’ sentiment about the future has experienced record declines. However, clearly producers of several commodities will enjoy funds from the cash payments.
Chuck Abbot of Successful Farming called out the headline winner with a piece titled, “Trump to Cut Soybean Farmers a Check for Up to $1.65 per Bushel”. Specifically, Abbot notes that
soybean growers would [receive] the lion’s share, $3.6 billion, of the $4.7 billion in cash payments to producers.
Of the seven commodities to receive cash payments producers will be paid using the following methods based on 50% of 2018 production:
- Soybeans – $1.65 / BU
- Pork – $8 / head
- Cotton – $0.06 / lb
- Sorghum – $0.86 / BU
- Dairy – $0.12 / cwt
- Wheat – $0.14 / BU
- Corn – $0.01 / BU
Since nearly 77% of all direct payment funds be will paid to soybean producers, it appears as if soybean producers are far and away the clear winner. However, the payout schedule as a percentage of the commodity’s future price offers a slightly different view.
$1.65 per soybean bushel is 19.5% of the current November ’18 futures price of $8.46. Viewing the direct payment methodology in this light, results in two other “winners”. Pork and sorghum are paid out at 15% and 24% of their futures values. This should not come as a surprise given the recent tariffs levied on these commodities by China and Mexico.
Disappointment for Corn and Dairy Advocates
Corn and Dairy direct aid payment as a percentage of their futures price was tiny. Advocacy groups for these commodities were very disappointed with the plan details.
Chris Clayton’s post captured some of these reactions. Clayton quotes National Milk Producers Federation President and CEO Jim Mulhern. Mulhern notes that the dairy aid package of roughly $127 million in payments to dairy farmers
“represents less than 10% of American dairy farmers’ losses caused by the retaliatory tariffs imposed by both Mexico and China.”
A different way to look at the payment formula is it represents less than 1% of the futures price for class 3 milk.
Additionally, Clayton captured the reaction by the National Corn Growers Association (NCGA). He quoted NCGA as saying the payments to corn growers
“would be insufficient to even begin to address the serious damage done to the corn market because of the administration’s actions.”
The penny a bushel offered in direct payments is in stark contrast to NCGA’s estimate that
the trade disputes had lowered corn prices by 44 cents a bushel, which equates to about $6.3 billion in lost value to the corn crop.
Finally NCGA President Kevin Skunes, succinctly convey’s corn growers disappointment with today’s direct payment details.
“NCGA has understood from the beginning that this aid package would neither make farmers whole nor offset long-term erosion of export markets. But, even with lowered expectations, it is disappointing that this plan does not consider the extent of the damage done to corn farmers.”
The trade aid details were revealed on August 27th by the USDA. The plan includes nearly $4.7 billion in direct aid to seven commodity producer groups. The “winners” of the direct cash payments are soybean, pork, and sorghum producers.
Update: Ag Nook’s story about the most recent US – China trade war is titled: “Latest Salvo in US China Trade War Certain to Punish US Producers“.