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Opinion: Fuel the market, not the trade war

The U.S. president told agriculture secretary Sonny Perdue to hurry up with a plan to pay farmers, said one Capitol Hill watcher.

Complicating an already complicated spring, U.S. Secretary of Agriculture Sonny Perdue has announced a broad, new scheme that could pay U.S. farmers up to US$14.5 billion.

This second bailout plan will not feature a by-the-bushel payment like last year’s nearly US$9-billion bailout because, Perdue explained, the U.S. Department of Agriculture (USDA) doesn’t want the new money to affect farmers’ 2019 planting decisions.

That makes sense; in fact, it’s one of the few items that does.

According to USDA, the new bailout will feature three, separate payments based on something it calls “county level rates.” No one, including USDA, however, can explain what, in fact, a county level rate is.

Why the vagueness? “Simple,” explains one Capitol Hill watcher, “the president told the secretary to hurry up with a plan to pay farmers and he did… ”

The haste left market analysts in the dark. With widespread planting delays throughout the Midwest some wonder how the program might affect farmer choices on the season’s fast-closing planting windows.

No one at USDA has yet to explain the bailout even as planting delays continue. As such, farmers face critical planting decisions without key profit-affecting information. Here’s how one farmer-friend whom I’ll call Bill (not his real name) explains it:

Bill dodged mid-May rainstorms to get all but 80 acres of corn planted. Now though, that 80 is a swamp. Bill hits his crop insurance’s “prevented plant” date very soon. As such, he can file an insurance claim against the unplanted 80 corn acres and receive a US$365-per-acre payment.

That payment, though, comes with two conditions. First, Bill must plant a cover crop when possible that cannot be hayed or grazed until November 1 and, second, nothing from the 80 acres is eligible for one penny of bailout money.

But Bill does have a third option. Under the crop insurance rules, he can take a steeply reduced payment (“about $100 an acre,” he says) and choose to plant the 80 acres in soybeans that he then can, believe it or not, purchase federal crop insurance on and qualify for what farmers are now calling “Trump bucks.”

What should Bill do?

If he takes the full insurance payment, he saves his corn-planting costs (“about US$460 an acre,” he says) and pockets US$29,440. He’ll have to spend a small part of it — maybe US$25 an acre — to establish a cover crop.

Bill could take the smaller payment, US$100 per acre, and put it toward the cost to plant beans now that rain has pushed harvest prices higher. It’s a gamble but it gets him a shot at a crop and some Trump bucks.

What would you do?

It’s hard to say, but here’s what farm groups and Congress could do: Urge the Trump administration to redirect a substantial part of the US$14.5 billion in bailout money toward fattening “prevented planting” payments. That will encourage farmers not to “mud in” any crops just to qualify for increased insurance payouts and Trump bucks.

If that occurs, this year’s substantially reduced planted acres and reduced production will drive market prices higher and deliver more income per acre to all farmers — those who planted and those who took the fattened “prevented planting” payment — than any trade bailout ever could.

Look at it this way: If all or any portion of the federal money will be spent, spend it to send the market higher, not lower.

The Farm & Food File is published weekly throughout Canada and the U.S.

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