US seeks to avoid planting distortions with new farm aid

Bloomberg

The Trump Administration unveiled its latest package to help farmers survive a trade war with China, adopting a model that aims to avoid influencing production decisions. The corn
futures fell.
The program includes $14.5 billion in direct payments to producers. Aid for most crops will be calculated based on what is grown in each county rather than just individual farmers’ plantings, US Agriculture Department officials said. Farmers can expect their first payments by July or August.
“The USDA is getting creative to avoid impacting planting decisions,” said Arlan Suderman, chief commodities economist at brokerage INTL FCStone Inc. “We don’t know the details of how they are going to make that formula work. The bottom line from a market standpoint is that it removes the link between planting decisions and the aid package. It focusses the market back on weather problems.”
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 President Trump, appeasing his rural-voter base has become crucial ahead of the 2020 elections. The new round of benefits brings to $28 billion the total assistance the US has announced for agriculture. Farmers and ranchers “bear the brunt of this trade dispute disproportionately,” Agriculture Secretary Sonny Perdue told reporters in the call.
At a White House meeting with industry leaders, Trump said farmers will be “greatly helped” by the aid package. Farmers “have ups and they have downs and it’s a wild business, but you wouldn’t trade that for anything, right?” the president said. He vowed to roll back more rules next week.
Agriculture officials on the call declined to describe how they would compute trade losses but said they would be based on direct and indirect effects of tariffs imposed by China, the European Union.
Producers of crops including corn, soybeans and wheat will receive a payment based on a single county rate multiplied by a farm’s total plantings to those crops in aggregate in 2019. Those per-acre payments aren’t dependent on which crops are planted in 2019, and therefore won’t distort planting decisions, according to the Agriculture Department. Moreover, total payment-eligible plantings can’t exceed total 2018 plantings.
Earlier this week, people familiar with the aid package said it was largely modelled on the market facilitation design used in the first round, including different payment rates for different commodities.
Republican Senator Joni Ernst of Iowa predicted at the time that payment levels would anger corn farmers, while traders speculated that the rate breakdown may favor soybean planting.
The model announced “avoids providing an incentive to plant soybeans to get a big payment,” said John C. Baize, an independent consultant, who advises the US Soybean Export Council. “That is a good thing. It is a decouple payment so should avoid any WTO problems.”
Dairy and hog producers also will receive payments.
The $16 billion package also includes $1.4 billion in government purchases to be distributed through school lunch programs and local food banks. The USDA also allocated $100 million for export promotion. When Trump first tweeted about the new aid package it was framed as government purchases of crops that would be shipped to poor countries. There was no mention of foreign allocations in the USDA’s statement.
“The net effect of the program is to just underwrite the farm economy with $14.5 billion of payments,” said Baize. “That will help the President in rural Am-erica with respect to the 2020 election. Clearly producers of some commodities that are doi-ng fine will get the payments wh-ile others that are hurting bec- ause of trade war will get less.”