Washington Insider -- Wednesday

Unhappiness Over Trade Bailout Program

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

Ag Bankers Concerned About Credit Quality In Midst Of Farm Downturn

Even as 57 percent of farmer borrowers were profitable in 2019, up six percentage points from 2018, some 82.5% of ag lenders reported declines in farm profitability from all reporting regions in results of an ag lenders survey conducted by the American Bankers Association (ABA) and Farmer Mac.

Lenders listed credit quality, competition for loans and weaker loan demand as their chief concern, the report said, while producers listed liquidity, income and leverage as their top concerns. However, the report noted that “trade, tariffs and weather edged up on the list.”

Only 9.1% of respondents said that they expected increased profitability for farmers the next 12 months while 55.1% expected profitability to decline. As for specific ag sectors, the report said that dairy, grains and cattle were sectors of the most concern.

However, interest in financing for hemp and alternative energy were big of note, with 49.9% of lenders say farmers were asking about financing for hemp production and 36.8% inquired about alternative energy financing.

Some 49.6% of lenders expect land values to decline in 2020, with lenders reporting an average of 37.8% of land in their markets was above market value. “Lenders also expect compression in cash rents, but few lenders reported above-market value rents compared to 2018,” the report said.

Nearly half of lenders said there was an increase in farmer retirements in 2019 and nearly two-thirds said they look for that pace to quicken in the next 12 months.

USDA Publishes Interim Rule On CSP

USDA has published an interim rule in the Federal Register putting changes in place for the Conservation Stewardship Program (CSP) that were part of the 2018 Farm Bill.

Funding for the program is set at $725 million in Fiscal Year (FY) 2020, rising to $1 billion in FY 2023.

The interim rule reflects public feedback gathered via a listening session in February 2019 with the agency also receiving 183 written comments from various interests. The rule is effective today, with USDA taking comments by January 13, 2020.

The notice also contains an Environmental Analysis and Finding of No Significant Impact, with comments on that portion of the rule due on or before December 12, 2019.

Washington Insider: Unhappiness Over Trade Bailout Program

US agriculture is so large and diverse that it is difficult if not impossible to meet industry-wide needs with a single program, even if it is basically a cash payment.

For example, Senate Democrats are “attacking President Trump’s $28 billion farm trade aid program on the grounds that it favors southern farmers at the expense of their counterparts in the Midwest and Northern Plains.” Also there are charges that it favors growers of cotton over soybeans and large producers over smaller ones.

“The administration is using a flawed formula that helps big, wealthy farms and billion-dollar foreign-owned companies, while small farms get left behind,” Senate Minority Leader Chuck Schumer, D-N.Y., said. He wants USDA to stop “picking winners and losers, and ensure all of America’s farmers get the help they need--not just a lucky few.”

Democrats on the Senate Agriculture Committee, led by Debbie Stabenow, D-Mich., issued a report Tuesday accusing the administration of “extreme disparities” in the way it calculated the trade aid payments.

The report said five heavily Republican southern states – Georgia, Mississippi, Alabama, Tennessee and Arkansas – received the highest payment rates per acre under this year’s market facilitation payments. Ninety-five percent of counties that have a payment rate of at least $100 an acre are in the South.

This is in spite of the fact that farmers in the Midwest and Northern Plains have been hurt most by the trade war, the Democrats said.

The payments also “overcompensate” cotton growers, the Democrats claim, citing US Department of Agriculture data showing a 3.9% increase in the price of upland cotton for the 2018 crop compared with the prior year.

Democrats also criticized the program for making commodity purchases from large, foreign-owned agricultural conglomerates, including $90 million paid to a subsidiary of Brazilian-owned JBS SA.

More than half of the administration’s first-year market facilitation payments went to just 10% of the recipients in the program, according to an analysis by the Environmental Working Group of records obtained through the Freedom of Information Act.

Democrats complained the Trump administration nonetheless doubled payment caps for this year’s trade assistance program.

Last year’s trade aid made payments based on crop type, but this year the assistance rates are on a “per-county rate based on the blend of crops grown in the area,” with payments ranging from $15 to $150 an acre. The administration hasn’t released details on how it calculated financial damage from the trade war for the aid program.

Rural voters are a key constituency for President Trump as he heads into the 2020 election and government aid has become an increasingly important source of income for America’s farmers amid the financial stresses of the trade war with China, a commodity glut and wild weather, Bloomberg said.

A recent American Farm Bureau Federation study found that almost 40% of projected farm net returns this year will come from trade aid, disaster assistance, federal subsidies and insurance payments, Bloomberg said. The AFBF said the supports totaled some $33billion of a projected $88 billion in net income.

Farm bankruptcies are rising nonetheless, this year hitting the highest levels since 2011, Bloomberg said.

As criticism of the payments and the formulas used to define them grows, the administration likely faces a daunting task in its efforts to convince producers not only that the “trade aid” program is effective and fair, but also that benefits from the “get tough, tariff-based policies” will be worth their cost. This debate should be watched closely by producers as it intensifies, Washington Insider believes.

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