Mixed reactions to $12 billion trade compensation package
SIOUX FALLS, S.D. -- The Trump Administration has announced a $12 billion trade compensation package to make up for farmer's market losses due to the trade war. U.S. Department of Agriculture Secretary Sonny Perdue says the program includes gover...
SIOUX FALLS, S.D. - The Trump Administration has announced a $12 billion trade compensation package to make up for farmer's market losses due to the trade war. U.S. Department of Agriculture Secretary Sonny Perdue says the program includes government food purchases by the Commodity Credit Corporation of surplus-affected commodities and a trade promotion program. It also involves direct payments for commodities, including soybeans, sorghum, corn, wheat, cotton, dairy and hogs. However, he says the details will not be released until Labor Day.
Trade participants have been analyzing the package to determine its market impact and have speculated that the direct payments could be between $7 to $8 billion of the total. Steve Freed, vice president of grain research with ADM Investor Services in Chicago says their sources say the payments will be tied to 2018 production and gave an example for possible soybean compensation. "This package suggests that the trade war will continue for some time and this compensation is to help farmers where prices went down," he says. "It could be anywhere from $1.10 to $1.50 for the 2018 crop."
Freed says the aid package will help farmers and the rural community, but the total impact is unknown.
Greg Anderson farms near Newman Grove, Neb., and serves on the Nebraska Soybean Board. He says farmers are unsure what the amount of the payments will be and if it will make up for the $2 drop in soybean prices from the high just before the tariffs were announced. "That's something that's still to be worked out," he says. "I've heard that it's going to be tied to this year's production, so for example in soybeans. We're looking in the Midwestern states and just about every soybean-growing state has a very, very good crop. If that's tied to the bushels per acre, if we go into the FSA office and prove our yield for this year and then a certain dollar amount is assessed to each bushel we produce, I don't know how much that might be."
Anderson is optimistic the payments will help farmers. "I think any extra monies that can come in before the end of the year certainly will help with cash flows, will help with the people that address their bankers at the end of the year, and certainly going into next year to have that capital in which to farm," he adds. However, he also says for some farmers he fears it may be too little, too late.
South Dakota Farmers Union President Doug Sombke says the trade aid program is totally inadequate. "If you think that we're at 1976 cost of living, it might be, but it didn't work back then, so I don't know how it will work now," he says. "This is just more evidence that this administration had no idea how they were going to use or even act on a tariff war. This is terrible for our young farmers."
Sombke says the longer the tariff situation continues, the worse it will be for agriculture, "I've heard from young farmers like crazy this past couple of weeks. I've heard from bankers. I've heard from accountants. No one knows how this is going to pan out. No one is sleeping at night. This is more serious than anyone is considering," he says.
The impact of the trade war on farmers so far varies. For Beaver Creek, Minn., farmer Jim Willers, he says he sold his old crop soybeans before the price drop and so it won't really impact him until this fall when his new crop is harvested. "I think this fall is coming very fast and I don't see a whole lot of things happening really quickly," he says. "They could, but even if you do get China back, how do you get that $2 of the market back?"
Willers also wonders how USDA will figure market losses and do it equitably. "Who gets what and how do you figure that out? Some farmers have sold grain ahead and some haven't and what's fair?"
However, most farmers say they want trade, not aid. Valley Springs, S.D., farmer and American Soybean Association board member Kevin Scott says they have never wanted a bailout program. "We don't want a subsidy. We never have wanted to farm that way. It's not sustainable and we just need to make our money from the market," he says.
Centerville, S.D., farmer Tim Ostrem agrees. "As a rule most farms would say they don't want their money coming from the government. They want it coming through the commodity that they're raising," he says.
The package also includes more money for trade promotion to open new markets. Farmers welcome that, but don't want to lose existing markets that have taken them years to develop. "We just hope we can keep maintaining our sales ... in the future whether they be through other countries with new markets or whether our old customers come back," Ostrem says.
Willers agrees. "I'm assuming they just think it's like a band aid to tie things over, but to keep those markets - that's what's important. Long term is where it's at," he says.
Willers says American soybean farmers have been working for decades to build those markets up. "Hundreds of farmers from 30 states go all around the world and promote our markets. We sell over half our beans around the world, we sell 30 percent of them to China and in just a couple months, the tariffs come along and everything is in jeopardy," he adds.
Most farmers and farm groups are also in agreement they want the administration to resolve the trade war as soon as possible because the longer it lasts, the harder it will be on farmers financially. Plus, there is the risk of losing export market share in countries, including China. Soybean producers are worried they will lose long term business with their number one customer as they are already buying from Brazil. "The longer it lasts I'm sure that they're going to be looking at other places, and then they develop those relationships with other places - and if it's working for them they'll probably stick with them," Ostrem says.
As far as the soybean market impact from the aid program, Freed says farmers may market less of their soybeans and more of their corn and wheat crop this fall into 2019.
Beyond that, how would the market react if there was a deal worked out with China? "I think the market perceives that this $2 break in soybean prices, as much as 80 percent of it had to do with the trade war," Freed says. "So, I think farmers perceive that we could see after harvest, before the next South American crop a $1 rally if they were to solve it before the next Brazilian crop."
Freed says the problem is many trade experts feel the trade war may last for at least another year, which is not good news for farmers. "So, it may not be until the fall of 2019 until they decide because the most important part of the controversy is the intellectual properties and the Chinese are not going to give up on that. So, you have to find some kind of middle ground without that to come up with a resolution," he says.