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We need a reset

By Staff | Aug 19, 2020

Right, wrong or otherwise there is a public perception out there that U.S. farmers are a Trump constituency that has been subsidized for political reasons with taxpayer money. I believe that there were valid economic reasons for payments that we got but not all of the support was bi-partisan or funded by Congress. The MFP trade relief payments came from the CCC which were never expected to be used in the way that they were. DJT was very transparent that he saw “the money” going to farmers as coming from him from his good graces and that he expected love back. He exaggerated the impact of the money, acting like it was free cash flow that farmers could/should spend on new tractors and more land and that there would be more where that came from.

He oversold the impact of trade agreements. Remember when he said that he had opened the ag markets to Europe and they had no idea what he was talking about. They did not even concede to negotiate ag. He picked fights with ag trade partners that made no sense but as long as farmers got reimbursed, they accepted it. The idea was that he would win great trade deals that would make it all worth it in the long run has not born reality. His tariffs generated counter-tariffs and I do not believe that we have recovered the cost of those counter-tariffs yet, let alone break into the black on the trade deals that he has done. We are not in a bull market; we have needed every dime of government help to keep the wheels turning and the prospects of where the ag economy goes next if the USDA checks shut off create doubt in the future. Phase-one with China is likely good only through the election.

What happens if/when the money stops?

Politico took on the challenge of answering that question, “It’s hard rolling back these things,” said Joseph Glauber, senior fellow at the International Food Policy Research Institute and former USDA chief economist. “The headlines are going to scream when [USDA] puts out a February 2021 farm income forecast that doesn’t show any ad hoc payments. Those will be ripped out of the balance sheet.

For example, the University of Missouri’s Food and Agricultural Policy Research Institute in June released its baseline estimates, showing government farm payments falling from at least $32.8 billion this year to $16.6 billion in 2021. Barring a strong economic recovery, the drop-off would leave a gaping hole in many farmers’ bottom lines: According to FAPRI’s analysis, net farm income would sink from $90.6 billion in 2020 to $79.4 billion next year, a far cry from the 2013 peak of $139 billion.”

With the trillions being spent on Covid-19 aid, I do not see the interest in Congress in authorizing any further trade aid. The hole blown in the national bank is gargantuan and at some point, austerity will be forced on us. If DJT gets re-elected, a democrat Congress will not be of a mind to fund further trade war aid to Trump constituencies. If the democrats win, which seems more likely, I do not think that changes. I do not have the impression that the democrats like us (farmers) all that much. They seem to have a lot of problems with commercial Agriculture and government cash going to what they incorrectly describe as “big corporate farmers” is likely to dry up. That could change a lot of things. The Dems are an urban political party and ag is obviously rural. If ag is seen as confederate it will not go well for us. There is a fair chance that the established subsidies, such as for crop insurance, PLC payments and such, will continue but with constraints. Subsidy limits are likely to get squeezed down as eligibility is limited. The Dems do not think that they can buy farmers love with government checks. They think that farmers will cash any checks that they give them and still vote GOP. I think that they are right. I see many here who if they were standing at the edge of a cliff, 1000 feet down, if given the choice of jumping or voting for democrats, you would find some of them at the bottom of the cliff. They are avid partisans and ideologues but they do cash Trump checks. Politico says that there is a Biden ad (I have not seen it) which features an Iowa farmer giving his take on Trumps trade policy as, “We are going to screw you and then pay you off with other people’s money.” DJT has been known to create a crisis and then take action that is intended to get him credit for fixing it.

Much of the damage done to ethanol and trade policy was “self-inflicted”. What I know for sure is that change is coming relative to government spending on ag. There will be less of it and what there is will be targeted differently than it used to be. While the U.S. ag sector has been struggling to survive the trade wars, we actually have been losing. Even with subsidies very little that we produce is profitable. The subsidies have allowed farmers to stay in business so that they could produce unprofitable crops. Why I say that we are losing the trade wars is that while U.S. farmers planted fewer crop acres this year, our overseas ag competitors planted more. This has become a trend. They are talking about reducing acreage further here in the U.S. while others expand theirs. We are losing market share. Brazilian, Russian, Ukraine farmers are profitable and subsidies make up less of their income than ours. You know how we have always said the we will feed the world? Farmers in Brazil now proclaim that they, not us, will fill that role. We’re going to need a re-set. There are farmers who are more worried about the details of their next subsidy payment than they are the market. Like I said, we do need a reset.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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