Washington Insider -- Friday
Trade Fight's North Dakota Impacts
Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.
Initial Round of MFP 2 Payments On Their WayUSDA has started making the initial payments to farmers under the Market Facilitation Program 2 (MFP 2).
"The process began today (August 21) for payments for producers that have approved applications so producers should be seeing that first 50% tranche of those payments very soon," Fordyce told USDA Radio. Second and third tranche payments accounting for 25% each of the total MFP payment will be sent out conditioned on continued trade challenges.
However, there are reports that glitches in USDA/FSA software regarding some components of the program will mean some producers will not get their payouts until September.
Looking forward, if trade conditions fail to improve by late fall, the second MFP payments will be made, likely in November, while a third would come "probably in January at some point" if the trade difficulties persist, Fordyce said. Those are payment timelines that USDA has signaled in public filings on the MFP 2 payments and in press releases.
China Signals Any New Tariffs By US Will Bring Retaliatory Response
Even though the U.S. has delayed a portion of the 10 percent tariffs set to go into effect September 1, China says any new tariffs put in place will bring a response from China.
"Despite the U.S. decision to delay tariffs on some Chinese goods .... if the United States rides roughshod over China's opposition and impose any new tariffs, China will be forced to adopt retaliatory actions,” Ministry of Commerce spokesman Gao Feng told a news briefing.
Gao would not say what response China would offer if the U.S. tariffs were put in place. He noted that the trade war is bad for the U.S. and China and would have a recessionary impact on the global economy. He also observed that U.S. and Chinese trade teams have been keeping in contact, but did not offer any guidance as the nature of those talks.
As for President Donald Trump’s statement that the U.S. would not intervene in the Hong Kong situation, Gao said, "I hope U.S. side can stick to its words.” Meanwhile, China’s Foreign Ministry also weighed in, calling on the U.S. to meet China “halfway” in the trade situation.
"We hope the United States will meet China halfway," said Foreign Ministry spokesman Geng Shuang. He said there is a hope that the two sides can “work out a resolution that is acceptable to both sides on the basis of mutual respect and equal treatment."
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Washington Insider: Trade Fight’s North Dakota Impacts
Bloomberg is reporting this week that as economic anxiety has intensified nationwide, the ag industry in North Dakota – on the far northwestern edge of the U.S. farm belt but relatively close to Pacific ports – is reflecting on its earlier economic decisions to invest millions on grain storage and rail-loading infrastructure while boosting plantings by five-fold in 20 years.
However, now that “the world’s top soybean importer shuns the U.S. market for a second growing season, Dakota farmers are reeling from the loss of the customer they spent two decades cultivating.”
This experience underscores the uneven impact of the U.S.-China trade war across the U.S., Bloomberg says. Although Chinese tariffs target many heartland states that, like North Dakota, supported President Trump’s 2016 election, those further south and east are better able to shift surplus soybeans to other markets such as Mexico and Europe. They also have more processing plants to produce soymeal, along with larger livestock and poultry industries to consume it, Bloomberg thinks.
For North Dakota, losing China – the buyer of about 70% of the state’s soybeans – has destroyed a staple source of income. Agriculture is North Dakota’s largest industry and it “probably has taken a bigger hit than anybody else from the trade situation with China,” Jim Sutter, CEO of the U.S. Soybean Export Council, said.
China shut the door to U.S. agricultural purchases on Aug. 5 after the administration intensified the conflict with threats of additional tariffs on $300 billion in Chinese imports, some as soon as Sept. 1.
In addition, Bloomberg says that some farmers who were relying on the administration’s $28 billion in farm aid payments to compensate them for trade war losses have been disappointed with new payment rates for counties in North Dakota, which are below those for some southern states that rely much less on exports to China.
The rates were determined by USDA who said it will provide higher rates for states with higher “level of exposure” to tariffs than North Dakota – because they also depend on crops, such as cotton and sorghum which also face Chinese tariffs.”
This spring’s soy crop was planted at a time when the White House was talking up a “nearly finished trade deal with China” that collapsed in May weakening prices, Bloomberg notes.
Vanessa Kummer farms in Colfax, N.D., and has yet to sell a single soybean from this year’s harvest because of low prices. Normally, the farm would have sold 50% to 75% of the upcoming harvest. In addition, she fears the U.S.-China soy trade is now “permanently damaged” as China shifts its purchases to Brazil, uses less soy in animal feed and consumes less pork as African swine fever kills of millions of the nation’s pigs.
Options for North Dakota farmers are limited. U.S. wheat has been losing export market share for years. Demand for specialty crops such as peas and lentils, which grow well in the northern U.S., has been dampened by retaliatory tariffs imposed by India, a major importer of both products.
North Dakota’s farmers did not set out to become so dependent on a single buyer of one crop, Bloomberg says. But with wheat profits shrinking and Chinese demand for soy growing, soybeans increasingly seemed like the obvious choice.
Rail companies expanded capacity to open up a West Coast corridor and Pacific Northwest seaports expanded to handle more exports to China. Seed companies offered new varieties that thrive in the state’s colder climate and shorter growing season.
A $200 million crop two decades ago blossomed into a $2 billion crop, topping the value of wheat, once North Dakota’s top crop. The number of high speed shuttle train loading terminals tripled with investments totaling at least $800 million.
But now one of those facilities, CHS Dakota Plains Ag elevator in Kindred, North Dakota, has gone three or four months without loading a soybean train this year, said Doug Lingen, a grain merchant there. Normally the elevator would load at least one train a month with beans bound for the Pacific Northwest.
The weakened demand has soybean prices in North Dakota trading at an historic discount to the U.S. average, and farmers are putting investments on hold.
Justin Sherlock, who grows corn, soybeans and other crops near Dazey, North Dakota, had been planning to invest $100,000 to $150,000 in a grain drier this year – but now has shelved those plans.
One reason is the low level of government aid in his county – now expected to be $55 per acre, well below the maximum $150 rate offered in 22 counties nationwide. Sherlock called the latest announcement “disappointing.”
“I’m just going to defer all my investment,” he said, “and try to limp along for a few years.”
So, we will see. It is clear that the farm economy is feeling economic pressure from several directions including lost overseas sales. Reports from the farm fair circuits indicate that there is growing criticism from producers as a result – a trend producers should watch closely through the fall, Washington Insider believes.
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