Todd's Take

USDA Comes to the Rescue?

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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Six consecutive years of good weather, plus a trade dispute with China, has DTN's national index of cash soybean prices near its lowest level in 11 years. On Thursday, USDA offered a plan to help farmers, but the lack of details raises a lot of questions about just how helpful it will be. (DTN ProphetX chart)

On Thursday, USDA described its second year of farm aid under the Market Facilitation Program (MFP), offering $14.5 billion of direct payments to farmers. But the agency was not yet willing to reveal the specifics on how much aid individual farmers can expect.

The message seems to be "Trust us," as USDA Secretary Sonny Perdue said Thursday, "We want producers around America to produce the way they would without any government program." (See "$16 Billion in Farmer Trade Aid" by DTN Ag Policy Editor Chris Clayton here: https://www.dtnpf.com/…)

Given the lack of information, it becomes even more difficult to understand the choices farmers are facing this spring. For producers unable to plant corn in May due to wet conditions, opting for prevented planting was a likely choice for many in the absence of an MFP payment. Now, however, opting for prevented planting means they forego an uncertain MFP payment.

Should producers in that situation plant corn late, try for soybeans or plant a less expensive crop like hay? The financial ramifications of each choice is currently unknown under the new MFP for 2019. Producers find themselves caught in a situation where they need to produce something to be eligible for aid but are given no guidelines as to what the possible outcomes may be. The guideline that says, "Trust us and do what you normally do," is not much help for producers facing tough choices.

What producers normally do is grow a hell of a lot of corn and soybeans each year -- crops that feed the livestock that feed the world. In 2019, however, corn planting is at its slowest pace since at least 1995, as each week, cool temperatures and more rain come to the Corn Belt. The world's greatest planting force remains largely confined to the shed, waiting for a chance to get into the field.

2019 also finds growing piles of U.S. soybeans approaching 1 billion bushels. This at a time when the world is anticipating its 11th consecutive season of record soybean demand.

Yes, that is correct. In spite of concerns about African swine fever reducing feed demand, USDA is expecting the world to consume a record-high 13.06 billion bushels of soybeans in 2019-20. Last year, 17% of world demand was provided by U.S. exports. But, in the current season, U.S. soybean exports are running 25% below last year's pace, virtually shut out of the world's largest soybean market by a dispute over technology transfer.

Before Thursday's announcement of MFP 2.0, corn producers were looking at the possibility of declaring prevented planting, which would have reduced this year's corn acres and brought a healthier balance for corn prices that had a chance to trade above this year's production cost, at least briefly. Now, however, USDA is offering producers a check that is tied to a requirement to produce a list of eligible crops, and the amounts are undisclosed.

Using government funds to require more production is only adding to the problem of why prices are painfully low in the first place. We have just witnessed six consecutive years of good weather and big crops, adding to surpluses that have been exacerbated by trade disputes.

The intention of MFP 2.0 is to provide financial assistance to farmers at a time when they have suffered from a disruption of trade. I am no legal scholar or public policy expert, but I do know a few things about markets.

Requiring farmers to produce more at a time when prices are signaling for less production will add to the surpluses and prolong the painful financial environment that producers are already in. To not even let producers know the amounts of the checks that compel them to produce is an extra form of abuse.

I am hoping to wake up from this bad dream and find out that USDA's explanations on Thursday were incomplete and that further helpful details are coming. If not, my plea to USDA is simple: Please go back to the drawing board and reconsider the choices that you are presenting.

In the medical profession, there is a saying, "First, do no harm." USDA would do well to keep that in mind. Financial aid for farmers should be helpful, not tormenting.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman

(BE/AG)

Todd Hultman