(Bloomberg) -- Donald Trump’s bid to help American farmers struggling to navigate his trade war with China risks stumbling on a contentious point: market-distorting measures.
When the president first tweeted about a plan to buy American crops and ship it to poor countries, he was met with skepticism about its viability given rules set out by the World Trade Organization. An upcoming proposal is said to include payments to soybean growers of $2 per bushel, and 4 cents per bushel to corn farmers, based on the acreage sowed this year. The White House said it was holding a meeting about the package on Thursday.
That reported proposal could end up distorting planting decisions as farmers still have to seed plenty of land, agriculture traders and analysts say.
“This is a horrible policy that encourages excess production of soybeans,” Dan Basse, the Chicago-based president of consultants AgResource said, adding the plan was coming at a time the U.S. has lost its biggest customer China. “You’ll lose massive amounts of corn acres under this rumored program.”
American farmers are struggling to remain afloat as the tit-for-tat tariffs spat with China leaves soybeans from last year’s harvest piling up. For Trump, appeasing his rural-voter base has become crucial ahead of the 2020 elections. His administration offered growers a $12 billion trade assistance plan last year. But as the trade war drags on, pressure keeps mounting, likely sparking his tweets for a second package that could exceed $15 billion.
The latest proposal, reported by Bloomberg News Tuesday, also includes a 63-cent-per-bushel payment to wheat growers, according to two people familiar with the matter. The outlines of the plan still could change and Trump can make adjustments any time before it’s officially announced.
While the U.S. Department of Agriculture says the program is “being designed to avoid skewing planting decisions one way or another,” in its reported form, soy acres would probably climb to a new record of over 90 million, Basse said. Earlier this month, the USDA estimated plantings of the oilseed would be about 84.6 million acres this year.
U.S. farmers typically have much of their corn planted by now, while soybeans can usually be sowed a bit later. But weeks of incessant rains across the central U.S. crop belt have stalled corn plantings, now running at the slowest pace on record. Many growers had already been considering making claims for the area they weren’t able to plant corn on, so-called prevented plant insurance. The proposal, in its reported format, could change that.
“I will be telling farmers to forget prevent plant on corn, which likely will lose money, and plant wall-to-wall soybeans to get tariff aid,” said Bryce Knorr, senior grain market analyst at Farm Futures in Saint Charles, Illinois. “Soybeans look profitable if they get the full tariff payment” reported, he said.
The USDA has said details on the package are forthcoming. Whether the administration decides to tie aid to this year’s crop or historical averages could make a big difference in farmer decision. It’s also key that the agency finds a “reasonable equilibrium” between the payment rates for various crops, University of Illinois Agricultural Economist Scott Irwin said.
“We are still awaiting details of the plan, but at this point in the planting season, it’s probably best for the administration to base it off of historical plantings and yields,” said Andrew Grobmyer, executive vice-president of Agricultural Council of Arkansas. “However, we feel the payments must be substantially more than the program for last year as the conditions have worsened significantly.”
Republican Senator Joni Ernst of Iowa has already predicted the corn payment levels would anger farmers. Growers argued they were short-changed in last year’s plan and campaigned for better treatment in the new round of aid. The administration last year paid $1.65 per bushel for soybeans, 14 cents per bushel for wheat and 1 cent per bushel for corn.
Farmers can also benefit by claiming some corn acres under prevent-plant insurance, collect a slightly smaller payment rate and still sow soybeans as a second crop, Basse said, adding he was hearing from clients that’s what they wanted to do. That would allow them to also receive aid and insurance payments, a “double dip on the government,” he said.
If soybean acres do increase, it would likely add to the global glut, said Stephen Nicholson, a senior analyst for grains and oilseeds at Rabobank, a lender to the agriculture industry. Domestic stockpiles are already projected to reach a record this year.
At the same time, the proposed plan could end up curbing corn supplies, raising prices and “inflicting economic losses on U.S. livestock producers” who use the grain in feed, according to AgResource’s Basse, who has followed the market for four decades.
“The sooner the uncertainty about how payments will be structured is resolved, the fewer people will make planting decisions based on the wrong assumptions,” said Pat Westhoff, director of the Food and Agricultural Policy Research Institute of the University of Missouri in Columbia.
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