Bad weather and Trump's trade war spawn U.S. farmer quandary
Clay Govier reckons he'll be kept out of his fields through the Memorial Day weekend as a torrent of rain drenches farms across the Midwest and Great Plains.
While that may give Govier an unwanted break from fieldwork, the U.S. farmer will be kept busy by a dilemma: He has to consider whether it would prove more profitable to grow corn or switch to soybean once the downpour abates. Or plant nothing at all and make an insurance claim for his troubles. Adding to the confusion is a lack of clarity over a government aid package for those hurt by the trade war with China.
"That is a bit of a conundrum right now," Govier said in a telephone interview.
It's a decision that American farmers will have to make in coming days, after storms battering their fields reduced the planting pace for corn to the slowest on record for this time of year. While the wet weather has pushed up prices of the grain in Chicago to the highest level in a year, that doesn't mean there will necessarily be a rush of sowing as the sky clears.
The farmers risk missing deadlines specified in crop-insurance policies that pay them in the event of a drop in prices or crop failure. Delayed planting can also cut yields as key grain development phases are pushed into peak summer heat. There's an old adage that states farmers lose a bushel of corn a day when planting after mid-May.
Michael Cordonnier, owner of Hinsdale, Illinois-based Soybean & Corn Advisor Inc., said it's not quite so simple. From May 20 to May 25, losses in corn yield per acre could be only a third to a half bushel. From May 25 to May 30, the potential declines are three-quarters of a bushel. By June 1 to June 5, the declines jump to as much as 2 bushels per day. "The losses accelerate as you go forward," he said by phone.
Another option for farmers is to instead make claims for so-called prevented planting, which pay out those who are unable to sow seeds due to extreme weather.
"The lowest percentage of corn planted for this period in our database since 1980, the wettest conditions in modern history and fears of increasing trade tension are strong incentives to just take the insurance money," Bloomberg Intelligence commodity strategist Mike McGlone said.
That is if farmers don't switch to soybeans, which typically have a shorter growing season that helps minimize the risk the crop won't be harvested before winter hits. Though soy plantings have also been stalled by the rain, a decision to swap some corn acreage to the oilseed may hinge on the Trump administration's plan to help farmers hurt by the trade war with China that's roiled prices.
Government officials were considering payments of $2 per bushel to soybean farmers and 4 cents per bushel to corn farmers, according to two people familiar with the payment levels, who asked not to be identified because the aid plan hasn't been made public. That could make a switch to the oilseed a good decision for farmers such as Govier.
The outlines of the plan still could change since President Donald Trump can make adjustments any time before it's officially announced. "Details on the new trade mitigation program will be forthcoming shortly, but we want to be clear that the program is being designed to avoid skewing planting decisions one way or another," the USDA said in an emailed statement.
The White House will hold meetings on the farm aid on Thursday, May 23, according to Press Secretary Sarah Sanders. "We want to make sure that the farmers are being protected as we go through the process of negotiating new trade deals," Sanders told reporters on Wednesday, May 22.
Robb Ewoldt, who farms corn and soybeans in eastern Iowa near the Mississippi River, has only planted 20% of his corn and 60% of his soybeans, some of which will need to be replanted. He's never made a prevented-plant claim, nor has he been this late on his plantings. He's considering all options.
Potential farm aid payments are "nothing to scoff at," he said. "We have a lot of time to think about it because we have another week of rain. We'll be running numbers."
Karl Setzer, market analyst at Agrivisor in Bloomington, Illinois, said more details are needed, since no official government announcement has been made yet. "We do not know how payments will be based, so it remains a question if it will impact plantings or be based on last year's production," he said in an email.
University of Illinois Agricultural Economist Scott Irwin said that if the payments are tied to 2019 production, that could serve as an incentive to plant soybeans. "This would be exactly the opposite of what we need to be doing in the soybean market, which is badly oversupplied," he said.
Govier too said it could be more profitable to make an insurance claim on acres he was unable to plant than to sow soybeans. For now, with the rain pouring down, he doesn't think he's going to get back into corn. "We might get this Memorial Day weekend off whether we want it or not," he said.
This is article was written by Michael Hirtzer and Shruti Date Singh, reporters for Bloomberg.