Washington Insider -- Thursday

Countering Trade Fight Impacts on Ag

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Kudlow Adds Voice To Potential Farmer Aid In 2020

President Donald Trump’s tweet Tuesday morning saying he would provide more aid to farmers in 2020 if need be was followed up by comments from National Economic Council Director Larry Kudlow in remarks to CNBC.

“The farmers have been great,” Kudlow said. “They are patriots. They have backed us 100%. God bless them. We are helping them as much as possible. We will help them more if need be and we will see how the negotiations go.”

As for the Market Facilitation Program 2 (MFP 2) payments, the first installment is to go out late this month or early next month and most observers agree that the second and third installments of the trade aid will be made even though USDA said that those payments would be made only if needed.

Split Views Emerge on USDA’s GE Crop Plan

Not surprisingly there are differing views on USDA’s proposal to update regulations covering genetically engineered ag products, with several farm organizations like the American Farm Bureau Federation and National Association of State Departments of Agriculture voicing their support.

However, others like the National Grain and Feed Association and other grain handling groups have expressed concerns about the plan.

In a letter to USDA this week, AFBF, NASDA and several others said they welcomed the USDA plan as it would "greatly reduces unnecessary regulatory hurdles" for developers of genetically engineered crops.

Meanwhile, NGFA and others maintain that the USDA plan would potentially increase uncertainty as it “risks undermining consumer acceptance and international regulatory recognition of APHIS’s regulatory oversight.” They also called on the agency to hold off its rules until FDA and EPA take similar regulatory decisions.

Washington Insider: Countering Trade Fight Impacts on Ag

Bloomberg is reporting this week that President Donald Trump is emphasizing his willingness to deliver more aid to farmers hurt by the trade war with China. However, Bloomberg also says that “concerns are growing that the U.S. agriculture industry could suffer a long-term loss of market share as other countries rush in to fill Chinese orders.”

The report follows a call by the leading farm group on Monday that said China’s decision to halt imports of U.S. agricultural products is “a body blow” to the nation’s farmers — a crucial constituency for Trump, Bloomberg said.

The President responded with assurances of continued assistance on Tuesday, suggesting he would add to the $28 billion in trade aid already approved for farmers over the past two years.

“As they have learned in the last two years, our great American farmers know that China will not be able to hurt them in that their President has stood with them and done what no other president would do,” Trump said in a tweet. “And I’ll do it again next year if necessary!”

Trump so far has maintained political support among the rural voters who overwhelmingly backed his 2016 election as federal assistance “partially” offsets farmers’ losses from tariff dispute. However, Bloomberg also noted that farmers and their lobbyists in Washington are increasingly responding with demands for “trade not aid” as shifts in global trading patterns harden.

Bloomberg noted Brazil and Argentina are capturing larger shares of soybean sales to China, the largest export market for the oilseed. Total U.S. soybean exports in the 2018-2019 growing season dropped to 46.3 million metric tons from 58.1 million the prior year. At the same time, Brazil and Argentina’s combined soybean exports rose to 86 million metric tons from 78.3 million in earlier years, USDA said.

Farmers in Brazil also are converting more land to soybean production to satisfy Chinese demand, raising the country’s long-term production capacity. Fertilizer Giant Yara International ASA forecasts Brazil’s soybean planted area will rise 2.5% this year as farmers shift pasture land and sugar-cane areas to the crop.

The chairman of the trading arm of China’s top food company told an industry event in Sao Paulo on Monday that his company expects to increase soybean purchases from Brazil by 5% annually for the next five years. Johnny Chi, chairman of COFCO International, also said his company plans to boost investments on logistical supports in Brazil.

Archer-Daniels-Midland Co. Chief Executive Officer Juan Luciano said in an Aug. 1 conference call with analysts that the damage to U.S. agriculture grows the longer the tariff dispute continues, though he doesn’t think it has yet done irreparable harm.

“People find alternatives and eventually they become a little bit more comfortable with those alternatives,” Luciano said. “So, this is not good for the U.S. farmers.”

Zippy Duvall, president of the American Farm Bureau Federation, the nation’s largest and most influential general farm organization, said Monday U.S. farmers are “grateful” for the money the Trump administration has given them so far but “we know that aid cannot last forever.”

He called China’s import cut-off “a body blow to thousands of farmers and ranchers who are already struggling to get by.”

Roger Johnson, president of the National Farmers Union, the second-largest general farm group, said Trump’s “strategy of constant escalation and antagonism” has “just made things worse.” America’s family farmers and ranchers “can’t withstand this kind of pressure much longer.”

Duvall said the tariff war is worsening the plight of a farm sector already reeling from low commodity prices and bad weather. U.S. farm exports to China had already fallen $1.3 billion during the first half of the year, he said. “Now, we stand to lose all of what was a $9.1 billion market in 2018, already down sharply from the $19.5 billion farmers exported to China in 2017,” Duvall said.

Last year, the administration announced $12 billion in aid to farmers hurt by the spat. The president followed that up with another $16 billion in trade assistance this year.

Prior to Trump’s recent tweet, USDA Secretary Sonny Perdue had warned farmers not to count on more trade aid, but the president changed directions on that policy.

Trump won overwhelming backing from rural voters in 2016 and their continued enthusiastic support is crucial to his re-election bid, Bloomberg said. In June, 54% of rural voters approved of Trump’s job performance compared with a national approval rating of 42%, according to a Gallup survey.

So, we will see. While producer political support is important for most rural Republicans, trade aid program costs are growing sharply and cannot fail to be noticed by budget hawks who are also thought crucial for the coming elections. In addition, past efforts by the government to offset market hits such as the one from the Carter administration’s 1980 embargo on shipments to the Soviet Union. The political costs of that policy were severe, swift and long lasting — a historical fact the administration appears to be determined to largely ignore at this time, Washington Insider believes.

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