What to watch for as the U.S. announces trade aid details

(source: United Soybean Board)

The U.S. government will announce details of its planned US$12 billion trade aid package for the agriculture sector on Monday, according to Agriculture Secretary Sonny Perdue.

The package, which was first announced in July, will include direct payments to producers to offset the impact of tariffs on U.S. exports.

Sources told Agri-Pulse that the preliminary proposal included a payment rate of $1.65 per bushel for soybeans and 1 cent per bushel for corn, based on 2018 production. It’s expected there will also be payments for sorghum, wheat, cotton, dairy and hogs.

The final numbers announced on Monday could be different, as Perdue noted on Thursday that they were still under review by the Office of Management and Budget.

Why this matters: 

  • The sole political purpose of this package is to solidify the continued support of farm country for President Trump. Farmers have been asked to give the president’s trade strategy patience but patience has recently been wearing somewhat thin, as soybean and hog markets have been hit by tariffs.
  • This payment buys the president more time in rural America. At a rally in West Virginia this week, Trump compared trade talks to cooking a delicious turkey. It takes time.
  • By possibly gaining more time, the president will potentially be able to push out timelines on needing to complete NAFTA or a China deal past the mid terms this fall and continue referring to his push for “fair deals” in campaign-style speeches

What to watch: There are plenty of potential spin-off (what economists would describe as “trade distorting”) issues from this package in the U.S. and abroad.

  • Soybean sales could be fast and furious this fall, instead of being put into storage. “If you’re going to have $1.65 that you’re adding on top of it, I’m going to take today’s price and then manage my risk on paper,” said Chip Flory, host of Agritalk on RealAg Radio on Wednesday. “If you have to have a scale ticket to prove what your yield was, that’s going to move beans in a hurry if there’s a $1.65 payment coming.”
  • With farmers willing to sell and exports potentially constricted due to Chinese tariffs still in place, domestic crushers and exporters will be able to push the cash price lower. That price decline will likely be felt north of the border, as much of Canada’s soybean production moves south. “I think that’s going to have a horrible effect on price here if a whole bunch of beans start shaking loose in the U.S. That’s going to put pretty big pressure on price, and we don’t have a compensation package around soybeans…,” noted Mark Brock, Ontario farmer and former head of Grain Farmers of Ontario, on RealAg Radio on Thursday. “It’s frustrating to see this trade stuff happen.”
  • The compensation is only for 2018 production, so it shouldn’t impact acreage plans.
  • The WTO question — will Canada and/or the EU challenge the aid package at the World Trade Organization? There are differing opinions on whether it will violate the Americans’ WTO commitments. The length of time a WTO dispute takes to settle, and the risk of further frustrating the relationship with the U.S. on other fronts, including NAFTA 2.0 talks, could certainly be reasons not to.

Stay tuned for details on Monday when the USDA unveils the details of the trade aid package!

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