Agricultural exports have not yet provided the boost to farm income that U.S. farmers have been hoping for. Instead, they are now harvesting large crops this fall without knowing if their corn and soybeans will find buyers in overseas markets.  USDA is already sending out checks under the Trade Mitigation Program to offset some of these losses.

As U.S. farmers face their fourth consecutive year of below-average net farm income, they are not yet receiving the boost from agricultural exports they had been hoping for.  The latest (August 30) USDA projection for 2018 net farm income is $65.7 billion, only 53 percent of the figure recorded in 2013.

The trade dispute with China has only become more intense in the last few months, with the latest salvo fired by President Trump’s decision to impose a new 10 percent tariff on another $200 billion of Chinese goods.  This new action went into effect on September 24.  The President’s conciliatory comments toward China from last spring have long since faded, with his assertion that China is seeking to interfere in the upcoming U.S. elections being featured in some of his recent campaign rally speeches.  No evidence has been provided to bolster these charges, aside from referencing a China Daily paid circular inserted in the Des Moines Register a few weeks which presented the Chinese view of the current trade dispute.

According to USDA’s Economic Research Service, the value of U.S. agricultural exports is projected at $144 billion for 2018 as of August 30th.  This represents an increase of 2.7 percent over the 2017 level but still 5.4 percent below the recent peak in 2014. This figure obviously does not incorporate the latest round of dueling tariffs between the U.S. and China–the next Trade Outlook report is due in November.

Trade Mitigation Program

Sign-up and payments under USDA’s new ‘Trade Mitigation’ Program began as of September 4th.  Early payments have already gone out to eligible dairy and winter wheat producers. Because final yield numbers are required before farmers can receive payments, producers of spring-planted crops won’t see their checks until later this year.

Although the original USDA announcement referenced $12 billion in total payments, only about half of that amount will be available in this initial roll-out of the program.  Lost trade volumes were calculated by staff from USDA’s Office of the Chief Economist, based on imposing a price wedge consisting of the applied tariff within a model of bilateral trade flows, and then dividing the resulting trade loss value by expected total production to arrive at a payment rate.  This model does not incorporate cross-commodity or cross-country effects.

Soybean producers fared the best under this approach–in the initial tranche of payments, they will receive $0.825/bu produced, followed by sorghum producers, at $0.43/bu, wheat at $0.07/bu, cotton at $0.03/lb, and corn producers, at $0.005/bu.  Pork and dairy producers will also receive payments under this program.  Of the estimated $4.7 billion to be paid out in this portion of the program, soybean producers are expected to capture 77 percent of the amount available.  USDA officials indicated that another tranche of payments with identical payment rates will be made later if the trade disruption persists into next year.  

Some farmers in the Midwest are reporting that their local elevators have already adjusted their bases for delivering grain and oilseeds, in order to capture a substantial chunk of these payments.  This will have the effect of further lowering farmgate prices.

The other two portions of the program, commodity purchases and additional funds for trade promotion, have not yet been launched.

‘New’ Trade Agreements

The newly renegotiated free trade agreement with South Korea, which Presidents Trump and Moon Jae-In formally signed in late September in New York, provides modestly improved market access due to lower tariffs for U.S. beef and pork producers but has no other substantial changes for U.S. agriculture.  The negotiators chose not to tackle the question of improved access to the Korean rice market, a sore point for U.S. rice producers.  This deal will not require Congressional approval to be implemented.

Last week, trade negotiators from the U.S., Mexico, and Canada, finalized a deal to update the North American Free Trade Agreement (NAFTA), although President Trump insists that the deal be given a new name. The Canadian government did agree to end their support for ultra-filtered (Class 7) milk and provide a tariff rate quota (TRQ) of for U.S. access to 3.5 percent of their dairy market, which was one of the major sticking points for the deal from the U.S. viewpoint.  In addition, the U.S. received modestly improved access into the Canadian poultry market, another supply-controlled farm sector, and achieved a reform of Canada’s wheat classification system, which will allow U.S. wheat sales to Canada for milling use. Previously, since U.S. wheat varieties were not included in Canada’s wheat variety approval process, such shipments could only be used for feeding livestock.  This new agreement, which President Trump wants to call the USMCA, will require Congressional ratification in the next session of Congress to take effect.


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