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Trump Readies New Round of Aid to Farmers Hit by China Trade War


The Trump administration is preparing to announce another round of aid to farmers hurt by the trade war with China as soon as Thursday, people familiar with the plan said, a package of assistance that could exceed $15 billion.

The aid plan is largely modeled on the program the administration put in place last year after China slapped retaliatory tariffs on U.S. agricultural products, though the payments will be more generous.

The administration is considering payments of about $2 per bushel to soybean growers, 63 cents per bushel to wheat growers and 4 cents per bushel to corn growers to compensate for losses from the trade war, according to two people familiar with the payment levels, who asked not to be identified because the aid plan hasn’t been made public.

The administration last year paid $1.65 per bushel for soybeans, 14 cents per bushel for wheat and 1 cent per bushel for corn.

Other commodities also will receive payments in this year’s aid package, as they did last year, said the people, who didn’t provide the rates.

Soybeans for July delivery fell as much as 1.5% to $8.19 a bushel in the minutes after Bloomberg reported the payment rates under consideration, before ending 1.2% lower at $8.22.

Karl Setzer, market analyst at Agrivisor in Bloomington, Illinois, said soybean futures dropped on “the knee-jerk reaction to possibly even more soybeans planted to take advantage of the subsidy.”

Corn Farmers

Republican Senator Joni Ernst of Iowa predicted the payment levels would anger corn farmers, unless the administration raises them.

“Corn farmers are going to be very upset about this,” Ernst said. “It’s better than the 1 cent per bushel that they got earlier but it’s not enough.”

Corn growers argued they were short-changed in last year’s $12 billion trade assistance plan and campaigned for better treatment in the new round of aid. The National Corn Growers Association sent out a call to action last week urging farmers to call the White House to seek a higher payment for corn.

The outlines of the plan still could change since President Donald Trumpcan make adjustments any time before it’s officially announced. The White House referred questions to the Agriculture Department.

“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.

Payments to Farmers

The current plans call for some direct purchase of food by the government, as Trump indicated when he first announced the new round of trade aid, but payments to farmers would be the main element of the assistance.

Agriculture Secretary Sonny Perdue said last week that the aid package could go as high as $20 billion, more than the $15 billion Trump announced earlier this month.

While the payments last year were based on farmers’ current production, the basis will be modified, the people familiar with the plan said. The administration is considering basing payments on the acreage farmers plant this year and their historic yield of crops per acre, the people said.

Read More: Corn Hits Highest in a Year as U.S. Planting Drops to Record Low

Former Agriculture Department officials and economists have warned that a decision to base payments on current acres planted risks skewing farm production decisions and adding to the rising stockpiles of crops, particularly soybeans. That risks depressing commodity prices even after the current trade dispute is resolved.

The combination of a disparity in payments favoring soybeans over corn and rainy weather in the Midwest could encourage farmers to change plans and decide to plant soybeans rather than corn. Soybeans have a shorter growing season, so they can be planted later.

At the rates the administration is considering, “if payments are made on actual plantings that would really seem to push plantings towards beans, particularly with the wet spring,” said Joseph Glauber, former chief economist for the U.S. Agriculture Department.

As of Sunday, farmers nationwide had planted only 49% of the corn they had said they intended to plant, according to the U.S. Department of Agriculture, the slowest progress in data going back to 1980. On average over the past five years, farmers had planted 80% of their intended crop at this point in the year.

Since Congress passed the Freedom to Farm Act in 1996, U.S. farm subsidies had moved away from payments based on current crop production in an effort to avoid distortions in agriculture markets. Instead, subsidy payments are based on an average of how many acres a farmer has planted of an individual crop in previous years and crop yields for the area.

The payments last year were made through the Commodity Credit Corporation, a New Deal-era entity administered by the U.S. Department of Agriculture. The trade aid last year also included some food purchases.

 

Source: Bloomberg


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