A $12 billion Trump Administration ag bailout was tossed into a sea of pollinating uncertainty on Iowa farms, providing a breath of relief from a trade war and a string of losing years.
Yet farmers, bankers, economists and politicians remain uncertain whether it is enough or how long this will last in a week that saw the President visit Dubuque and declare that tariffs are great.
Two days before Trump’s July 26 pilgrimage through the hard-hit and politically pivotal Midwest, the US Department of Agriculture announced it will extend $12 billion in assistance to US farmers adversely affected by tariffs on pork, corn, soy and other commodities. Farm-state Republican senators kept a respectful distance from the proposal, with Sen. Ron Johnson of Wisconsin suggesting it was welfare. Republicans and Democrats alike in the Corn Belt were chanting “trade, not aid.”
The assistance, which is only effective for 2018, will be extended through direct payments administered by the Farm Service Agency, surplus purchases through the Agricultural Marketing Service and trade promotion through the Foreign Agriculture Service to develop new export markets.
The announcement came on the heels of an escalating trade war between the US and China. President Trump plans tariffs on as much as $200 billion in Chinese goods, and China has announced tariffs on $135 billion in US goods since last year, mostly on agricultural commodities. The Des Moines Register reported in June the Chinese’s 25% tariff on US soybeans has cost Iowa farmers $624 million. Iowa State University Livestock Economist Dermot Hayes told The Storm Lake Times in April the same round of Chinese tariffs cost Iowa hog producers $15 per head.
Iowa State University Economist Chad Hart said July 25 the USDA is estimating the damage to the ag economy at $11 billion, which is why it’s offering $12 billion in assistance. He’s uncertain whether the USDA’s estimate is accurate.
“All I can tell you is the damage is substantial, but to say that the damage is $11 billion is guesswork,” Hart said. “That’s probably based on depressed prices now versus when the trade war began in March… Who knows? You’re talking about a variety of products that have only been subject to tariffs for several months. If prices rebound, farmers might see less than $11 billion in assistance.”
Hart said the USDA has told farmers to “report their current production” to the FSA in order to receive payments. He said he didn’t have any further details on the program because USDA officials haven’t yet figured out the scope of the assistance or how it’ll be calculated. He said USDA offices will receive an update on the assistance package by Labor Day.
“The only thing I can say about it right now is that the assistance will be based on this year’s crop,” Hart said. “Last week in Washington they were having preliminary discussions about an aid package. You can’t expect details by this point.”
HART SAID IT’S “nearly impossible” to estimate the impact of the trade tensions because most of this year’s crops and livestock haven’t been sold. He said he’ll have a better idea on the impact by December, when the USDA releases its harvest statistics.
“My best estimate right now is that corn prices are off 12%, soybean prices are off 20% and hog prices are off 20%,” Hart said. “Whether that adds up to $11 billion is anyone’s guess at this point. No one’s sold their crop yet.”
Citizens Bank Senior Vice President Dave Drey told The Storm Lake, Iowa, Times July 25 the payments are a welcome sign for the ag economy in the region. He said renters and landowners with significant debts have felt a tight squeeze over the last five years, as farm income has halved over the same time period. He said the problem is particularly acute with renters. Corn and soybean prices have dropped in half since 2012, while cash rent has only decreased 25%.
“The only position I’d want to be in right now is if I owned land and had no debt,” Drey said. “Farmers around here are looking at $250 cash rent and land costs range anywhere from $225 to $450 per acre, depending if you’re planting corn or beans. With prices where they’re at now, $3.30 for corn and $7.95 for beans, that’s just tough to swing.”
Drey expects “depletions of working capital and negative cash flows” this year, but he doesn’t foresee large numbers of farmers going out of business. He expects yields to be at or near record-breaking levels.
“Corn is near break-even and beans are below break-even,” Drey said. “It looks like it’s going to be a good year for yields and a lot of guys around here were around for $8 corn. They’re not angling to get out of the business.”
But for young farmers who got into the business after 2012, Drey said softening prices caused by the trade war could pose “a serious problem.”
“I’d want a strong balance sheet from five years ago before going into this,” Drey said. He farms with his brother, Dennis.
Other farmers who own land say they haven’t seen much evidence of neighbors suffering financial distress yet. Many have turned to other sources of income — like putting up hog and turkey barns — in response to six years of softening commodity prices, or renegotiated their mortgages and rent contracts.
One Storm Lake farm landlord estimates he’s losing $90 to $125 per acre with his crop share, based on softening prices this year. He reckons the trade war will cost “half a rent check.” Storm Lake farmer Kevin Cone told The Times last month he wasn’t enthusiastic about the prospect of new tariffs, but many farmers are equipped with years of working capital to withstand the trade war. “Farming is a roller coaster, and if you don’t recognize that, you shouldn’t have gotten into the business in the first place,” Cone said. “This whole trade war, it’s a self-inflicted wound. That’s what really gets me.”
Cone and some of his neighbors are more afraid of the long-term impact of the trade war. Many farmers in short-term distress will receive assistance from the USDA, according to Hart, but that’s only for one year.
If it continues, US export customers like China and Mexico could turn to other partners for many ag products, especially soybeans.
“Export markets have helped us out a lot,” Cone said. “And if you shut a few of them out, that means less options to sell your grain... It makes us poorer in the end.”
Plus, China is expanding soybean acreage by a million, and Brazil is expanding too. That portends softer markets.
Increased pork production in Iowa is predicated on increasing world export demand, notes ISU trade analyst Dave Swenson. “Producers were reading the signals for two years, they sensed increased world demand,” Swenson said. He posits that the new Prestage Pork plant in Wright County’s second shift would be predicated on exports. It’s hard to assign a cost to that.
Tom Cullen is a reporter for The Storm Lake, Iowa, Times, where this appeared.
From The Progressive Populist, Septembe , 2018
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