USDA-OMB Argue Over Trade Aid

USDA Deputy: China Soybean Buys Are Good First Step, But Much More Needed

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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USDA Deputy Secretary Steve Censky (left) talks to farmers after addressing the Iowa Soybean Association in Ankeny, Iowa, on Thursday. (DTN photo by Chris Clayton)

ANKENY, Iowa (DTN) -- Leaders at USDA are taking their case to President Donald Trump to approve the second round of trade-aid payments to farmers after spending recent weeks "arm wrestling" with staff at the White House Office of Management and Budget over the Market Facilitation Program and its costs, USDA's second in command said Thursday.

USDA Deputy Secretary Steve Censky spoke to members of the Iowa Soybean Association about trade-aid payments and the farm bill. The status of those trade-aid payments was among the first questions from farmers when Censky wrapped up his talk.

The trade aid right now appears directly linked to China coming back into the market to buy U.S. agricultural products, though USDA only announced China's first purchase of soybeans Thursday morning. While China bought some beans, Censky said that needs to be kept in perspective.

"We're pushing for that announcement to be made soon," Censky said. "We're pushing for the second half of the MFP payments to be made. We have been having discussions within the administration and our friends on the budget office. So we're taking it to the president that this is a promise that has been made, the situation hasn't changed, the farmers are still feeling the impacts, so we hope to be having a decision in the very near future."

USDA early Thursday confirmed what the market had expected a day earlier -- Chinese state-owned entities had purchased 1,130,000 metric tons of soybeans (41.5 million bushels) for delivery to China during the current marketing year. Censky told soybean farmers it was a good start, but buys have to get bigger.

"You saw overnight, yesterday, China was back in the market. That's good news. It's a good start," Censky said, but pointed out China normally buys a minimum of 30 million metric tons of U.S. beans. "It's a great first step, but there needs to be a lot more as well."

When USDA originally announced the Market Facilitation Program details, the formula included a payment rate, which was $1.65 a bushel for soybeans, divided in half, making it 82.5 cents a bushel. USDA stated at that time the second round of payments would be announced Dec. 3, with expectations the payment rate could be changed if exports had returned by then. Last week, USDA officials started pushing the date back. A USDA spokesman emailed DTN earlier this week, stating a decision would come "before the end of the year."

Censky indicated USDA officials have been struggling to get approval from the White House Office of Budget and Management (OMB) to get program approval for the second tranche of MFP payments. Censky said the issue may have to be taken to the president to get those payments approved.

"We're very much advocating that the payments need to be made," Censky said, pointing to the overall decline in net farm income, which is forecast to be 14% lower for 2018 than 2017. "While we're pleased China has finally agreed to make some soybean purchases, we need to keep that in perspective."

Censky added, "We've been arm-wrestling with our folks at the Office of Budget and Management. Their job is to say no to government spending, but we've made the case that farmers need it." He noted that farmers will be seeing their bankers about operating loans within the next month. "So we need this, and we're taking it to the big boss and hope to have an announcement very soon," he said.

Censky declined to say whether there were specific changes made to the Market Facilitation Program that could delay payout to farmers.

Lindsay Greiner, president of the Iowa Soybean Association, said farmers have been asking him about the status of the second round of payments. He's heard a variety of responses as well about where those payments stand. He had heard at a United Soybean Board meeting last week that USDA and President Trump wanted to pay out the 82.5 cents.

"I think farmers are hoping that it comes through, but nobody really knows for sure," Greiner said. "Everybody wants to know for sure, and it's just kind of hanging there. The end of the year is coming. They want to know how to do their tax planning, and they might have beans in the bin they want to sell because they need the money, so people are kind of sitting on the edge of their seats waiting to see what's going to happen."

Marc Schaller, general manager of Countyline Co-op Inc. in Pemberville, Ohio, which services elevators that take in grain, is among those still waiting on USDA to announce payments. He said in a phone interview he had encouraged farmers to maintain ownership of their soybeans until the second MFP was made, based on the view that if positive trade news happened, it could add a $1 or more to the value of soybeans, or USDA would make the second 82.5-cent payment.

"Early when that program came out and I saw that Dec. 3 date, I made a marketing recommendation to my owners not to give up ownership until you saw the second payment, because if you sold your beans at harvest, then you would lose out if the market rallied," Schaller said.

Now, the market hasn't fully rallied as expected because of the lack of exports, so farmers have been anticipating that 82.5-cent payment for soybeans.

"It's one thing not to announce it at all, but when you publish a date, it should mean something other than hoping they get a deal put together before they have to pay out the money," Schaller said. "That's what it seems like today is they are trying to reduce their outlay, and I don't blame them for doing that, but they are the ones who set the date."

The American Soybean Association also sent out a statement Thursday that the China buy was encouraging but the second round of payments was still needed. ASA called on Agriculture Secretary Sonny Perdue to move forward with the second half of payments because it was assumed China would buy at least 50% of the 32 million metric tons it bought in 2017.

"With only a fraction of this amount accounted for in this week's announced sale, it is critically important that we see additional purchases and actual deliveries and for USDA to make a payment on the second half of 2018 soybean production," said ASA President Davie Stephens, a farmer from Clinton, Kentucky.

Between last summer's announcement and now, groups such as corn growers and dairy farmers have complained that their initial payments were calculated wrong and were way too low. Some crop disasters, notably hurricanes in the Southeast, also wiped out crops for farmers who only got paid on the trade aid for reported production. Such payment changes could be sticking points between USDA and OMB, though officials have declined to comment.

The China soybean buys come as part of the 90-day trade truce between the U.S. and China, during which several other major issues need to be addressed, mainly involving the theft of intellectual property, forced acquisition of technology and the rules around U.S. businesses investing in Chinese companies. "Those are the things the president said needs to be addressed," Censky said.

Censky also told reporters afterward that USDA wants to see China start buying other agricultural products as well. The expectation is China will buy other products that had been halted by tariffs.

"We're hopeful, and I'm not able to comment on that, but that's certainly what we're pushing them on," Censky said. "This sets a good faith on the discussions for them to start purchasing."

"We see this as a start, but only a start, and their purchases need to be robust and continue," Censky said.

Given Thursday's early price decline for soybeans, Censky said he expects some of the price "was already cooked into the market in anticipation of purchases" given that prices had increased since the G-20 Summit. The trade is also keeping the sales announcement "in perspective" given the normal volume of sales to China.

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Chris Clayton