Washington Insider -- Thursday

Collateral Issues and the China Trade Battle

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

USDA Announces Hemp Crop Insurance Coverage For 2020 Production

Crop insurance for hemp production will be available for the 2020 crop year via the Whole-Farm Revenue Protection (WFRP) program, according to USDA’s Risk Management Agency (RMA).

Producers can obtain WFRP coverage for hemp now if they are part of a Section 7606 state or university research pilot as authorized by the 2014 Farm Bill. Other producers cannot obtain coverage until a USDA-approved plan is in place. But USDA has not completed the rulemaking process on the hemp provisions in the 2018 Farm Bill, with plans to finalize the rules this fall.

WFRP allows coverage of all revenue for commodities produced on a farm up to a total insured revenue of $8.5 million. The 2018 Farm Bill amended the Controlled Substances Act to address how industrial hemp is to be defined and regulated at the federal level.

USDA Releases Study Showing Waterway Investment Benefits to US Ag

USDA unveiled a new study detailing the importance of inland waterways to U.S. agriculture and the economic benefits that additional investments could yield.

The study, prepared by Informa Agribusiness Intelligence, found the U.S. inland waterways system employed nearly 256,000 Americans and contributed $27.2 billion to U.S. gross domestic product (GDP) in 2016. It determined that additional investments totaling $6.3 billion over the next 10 years and $0.4 billion per year thereafter would see inland waterways contribute $64.6 billion to U.S. GDP by 2045, and employ some 472,000 people.

The study considered the impact of dredging the lower Mississippi River from Baton Rouge through New Orleans and the Southwest Pass into the Gulf of Mexico. It found the project - along with other waterway investments - would increase the market value of corn and soybeans by $39 billion by 2045 compared with the status quo of no additional investments, including new dredging.

“Water transport is the most efficient, cost-effective transportation for our producers, and our waterways keep the American exporter the most competitive in the world," USDA Secretary Sonny Perdue said in a statement accompanying the report.

"President Trump has made it a priority to revitalize our nation’s infrastructure and invest in our rural communities, and his goal to reestablish America’s economic prowess on the global stage can be furthered by rebuilding our waterways to support agriculture exports. We must continue to invest in modernizing our lock and dam infrastructure that flows through the heartland of agricultural production," he concluded.

Washington Insider: Collateral Issues and the China Trade Battle

A political factor in the U.S.-China trade war is attracting the attention of the urban press this week. For example, the New York Times gave front-page coverage to a story about farmer concerns over President Trump’s trade war. Also, The Hill highlighted a quote from “Iowa corn farmers” charging that the government put us in “one hell of a bad situation.”

At least one trade association was hammering the President for approving what it called 31 “unjustified” refinery waivers tied to ethanol, along with his growing trade war with China. It said those two issues, combined with the effects of climate change, are forcing the value of Iowa corn to drop ahead of harvest season.

The farmer group also charged that while the President has sought to cast himself as a staunch supporter of American farmers, the U.S. agricultural community has been disproportionately harmed as China targets farm products in an apparent attempt to hit some of Trump’s main backers.

Meanwhile, the President is continuing to argue that while the trade war may cause some “short term” pain,” farmers will be “big winners.”

The Times article emphasized a sophisticated aspect of this issue, the fact that in the current fight American farmers’ woes are collateral damage in a war that the administration is using to help manufacturers and others it believes were hurt by China’s trade practices—although the issues involved are not mainly agricultural.

More than a year into the dispute, sales of American soybeans, pork, wheat and other ag products to China have dried up as Beijing retaliates against U.S. tariffs, the Times notes. Lucrative contracts that farmers long relied on for significant sources of income have evaporated, with Chinese buyers looking to other nations like Brazil and Canada to get the commodities they need.

While the Times focuses on farm market pressures, it also thinks they have generally “remained resolute,” as the President continues to argue that his trade policies will help the agricultural industry in the end—even as questions grow regarding what those benefits may turn out to be.

“We’re not starting to do great again,” Brian Thalmann, the president of the Minnesota Corn Growers Association told Ag Secretary Perdue at a recent event. “Things are going downhill and downhill quickly.”

On Monday, after a 72-hour period during which Trump twice escalated his trade war with China, Thalmann said he could no longer support the President as he did in 2016.

Losing the world’s most populous country as an export market has been a major blow to the agriculture industry. Total American agricultural exports to China were $24 billion in 2014 and fell to $9.1 billion last year, the Times says and exports of farm products to China fell by $1.3 billion in the first half of the year.

The administration also has tried to mollify farmers by rolling out two financial aid packages totaling $28 billion—and is looking for other ways to help farmers, including additional trade deals such as the one recently described between the U.S. and Japan.

Last Thursday, President Trump summoned Perdue and Andrew Wheeler, who heads the EPA, to the White House to discuss options for increasing ethanol demand. The three came up with a package of policies that Trump plans to unveil at a White House ceremony in the next week that the Times expects to keep the waivers for ethanol refineries in place, while slightly increasing federal mandates for production of corn-based ethanol and biodiesel and allowing vehicles that use high-ethanol blends of gasoline to qualify for special EPA credits.

Perdue is a somewhat unlikely lieutenant in the administration’s trade war, the Times says because as Georgia’s governor, he worked to strengthen ties between the state and Chin. But as a member of the administration, he has been a staunch backer of the President’s policies, publicly defending tariffs, working to shrink the federal government and expressing doubts about the science behind climate change.

At Minnesota’s recent Farmfest, it was clear that Perdue’s Southern charm could go only so far. His answers to questions about how the trade war with China would end were curt the Times said.

Last week, USDA staff members in Nebraska left the Pro Farmer Midwest Crop Tour after receiving a threat from an angry farmer. An organizer of the event told the Times that farmers have been venting to government employees about depressed crop prices, falling farm income and lack of access to credit. “This is a stressful time in agriculture,” said Joel Jaeger, the general manager of Pro Farmer. “There’s certainly a lot of stress in the farm community.”

The fact is that one of the reasons trade negotiations are so tough is that they typically involve significant “collateral issues.” Thus, ag producers now are increasingly arguing that the trade fight that risks well established, lucrative ag markets in an effort to strengthen non-ag sectors like manufacturing are unfair and that government trade aid payments are greatly insufficient. In fact, collateral issues always involve very difficult issues—and almost always provide very attractive targets for the “other side” to exploit, as the Chinese are doing now.

So, what this debate may mean for future U.S. policies remains to be seen, but the fight appears to be growing increasingly confrontational and difficult, and should be watched closely as it intensifies Washington Insider believes.

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