Farmers face new levels of uncertainty, from relying on markets to living on ad hoc pay

FARGO, N.D. — As the presidential election heads into final stages, farmers and others are evaluating whether they’re better economically than before the Trump administration — and how they’d fare in a Biden administration.

Farmers have become more dependent on ad hoc federal government money.

Particularly, two economists say that farmers in this region — North Dakota, South Dakota, Minnesota and Montana —have become more dependent on ad hoc farm programs. Total revenues for farmers are down somewhat, but revenues were already down from previous levels.

“Prior to the trade war, the vast majority of a farm’s net income, looking at gross sales, came from the marketplace,” said Frayne Olson, a North Dakota State University Extension grain marketing specialist.

Things have shifted.

Amid an unresolved trade war, a large portion of income still comes from selling products, but the government ad hoc programs that once were used for weather-related crop disasters are now used to shore up losses from trade policies or pandemic.

“A lot of our net income — revenues minus our costs, when you get down to the bottom line — a large portion of that is coming from these ad hoc, or temporary financial emergency programs,” Olson said.

In 2015 and 2016, about 85% to 90% of farm revenue came from selling crops and livestock, with 10% from government support programs, mostly crop insurance.

Bryon Parman, an NDSU agricultural economist for farm finance, said farmers received Market Facilitation Program payments in 2018, but those went up to more people in 2019 — a year of low corn and soybean yields in the state. In 2019, 30% to 40% of net income on farms came from federal ad hoc programs, particularly the Market Facilitation Program. Another 10% came from traditional programs, and about 50% from the marketplace.

In 2020, the Coronavirus Financial Assistance Program will be added in.

Now, “over 100%” of the net income comes from ad hoc programs, Parman said.

“They would have had negative net income if it not for the ad hoc programs.”

The long-term impact of trade conflicts are difficult to assess. If trade relationships disrupt traditional markets and demand, farmers and agribusiness can’t quickly, or painlessly, shift to other markets.

“There is no question that agriculture — in particular, Northern Plains agriculture — short-term has been hurt because of the trade war,” Olson said. Commodity prices dropped here, proportionately, more than the rest of the U.S., in part because the region has geared toward serving rail export markets through the Pacific Northwest.

The trade war wasn’t primarily about agriculture, but about intellectual property rights and the ability of U.S. companies to do business in China.

Trump was elected on Nov. 8, 2016, and took office Jan. 20, 2017. He pressed an “America First” policy, and in January 2018 imposed tariffs on solar panels and washing machines. He opposed multilateral trade agreements, such as the Trans-Pacific Partnership, favoring one-on-one deals with individual countries. Multilateral agreements take longer to negotiate, but are more comprehensive, complex and stable.

In March 2018, it was steel (25%) and aluminum (10%). On June 1, 2018, Trump expanded tariffs on the European Union, Canada and Mexico. When compared to losing billions in trade deals, Trump famously tweeted, “Trade wars are good, and easy to win.”

But the Chinese and others imposed retaliation tariffs, which often affected agricultural exports.

Since then, the U.S. and China have held phase one trade talks with groundwork for smoother ag trade, especially meat and in corn, allowing state-owned and private Chinese companies to import corn. It’s a little early to say whether the long-term benefit is worth the short-term pain, Olson said.

Trade tensions between the U.S. and China have not stopped. This is the first time an open market economy has attempted a trade deal with a centrally planned economy.

China was able to adjust feed rations away from needing U.S. soybeans. They have been diversifying sourcing and investing in agriculture elsewhere in the world, including Brazil. China and Russia have negotiated a trade agreement on agricultural products.

“The U.S. probably has become a residual supplier,” Olson said. “We’re not necessarily the first phone call China makes anymore if they need product,” even if it’s cheaper.

Parman notes that Chinese alleged currency manipulation and their banking structure are sticking points. “It’s not so simple to ask a country to completely overhaul their banking system, or to change how freely information can come from the government to businesses,” Parman said.

Separately, the Democratic House of Representatives and then the Republican-led Senate passed the 2019 farm bill — the traditional safety net for farmers. The Senate vote was 87-13, although nine Republicans voted against it. Sen. Chuck Grassley, R-Iowa, voted against it, among other things, for expanding farm payments to first cousins, nephews and nieces, even if they don’t work on the farm.

The farm bill is designed with multiyear farm programs intended as the “safety net” for farm income. Historically, it was designed to protect farmers against production declines, but has shifted toward protecting against revenue shortfalls. In a separate but related system, there is federally subsidized crop insurance.

It is unclear how future administrations will support farmers. When the Chinese market disappeared, the Trump administration made the first MFP payments happen through Commodity Credit Corp. authority and distributed the payments through the U.S. Department of Agriculture’s Farm Service Agency. The second MFP payment was due to a blend of administration and congressional support.

Coronavirus packages have come through Congress, the typical source of ad hoc programs.

It is unclear whether the Democrats would push it through and run it the same way, Parman said.

“We’re getting revenue now from unpredictable points,” Olson said. “These are temporary, ad hoc legislation. We don’t know if they’re going to be reinitiated or if we’re going to have another round of them later on.”

Farmers have “shifted from traditional uncertainty, unknowns about yield and prices, to a new level of political uncertainty,” he said.

Parman said one important issue is continuity, or a change in U.S. direction on trade policy.

“My personal hope is that as this goes forward, we are able to look back and say, Yes, this was worth it, that the farmers and ranchers across the U.S. that paid a decent price for this are going to see that reflected in continued and increased purchases by China, that we get those higher commodity prices that we saw in that last decade. That’s what we’re all hoping on the ag side.”