KRAUTER: It’s All About “Ifs”

It’s an election year. Of course, there is going to be another round of Market Facilitation Payments (MFP) for farmers. The real questions that should be asked are, 1) are they going to get them correct this time? 2) Is the administration going to correctly look at the lost exports and lower prices for all commodities in the upper Great Plains states? 3) Or are they just buying votes again?

In the 2018 crop year after the administration had started the trade wars with some of the United States best trading partners on both the Pacific and Atlantic coast directions, the pressure got to the administration that production agriculture was being financially squeezed. The trade wars have been hurtful, and we better do something quick. Based upon actual production, payments were made at $1.65 bu for soybeans, $ .14 bu for wheat and $ .01 bu for corn, that’s right just a penny per bushel for corn. That did not please corn producers or canola farmers who were totally left out of the discussion.   MFP I trade aid was $12 billion.

In the 2019 crop year, export markets had not returned, and commodity prices still suffered greatly, so MFP II (2) was put out by the administration to stem the unrest. This time the focus was on planted acres by county.   County by county payment rates ranged from the low of $15 an acre to well over $100 an acre.  There was no consideration for futures price minus the basis.  Commodities like canola were left out again versus cotton that saw a huge bump. One only needs to look at the history of these two commodities for their prices and exports. You will quickly understand it does not pass the smell test with your eyes closed and reeks for southern voter’s influence. This trade aid package of three payments will come in at over $16 billion.

Fast forward to today, 2020. 30 days have passed since the signing of the Phase I trade deal with China and until we all see the vessels of United States commodities like soybeans or wheat or pork or beef being unloaded in Chinese ports, it’s all about ifs. The grain markets have this figured in already, thus they’re bearish. It’s also interesting that the February USDA WASDE report boosted soybean exports estimate by 50 million bushels and then lowered the average soybean price down to $8.75.   Looks good but that’s a wash. We also have a refurbished NAFTA 2.0 agreement signed and until we see actual export numbers increase it’s all about ifs.

The 2020 economic indications are trending down. Farm bankruptcies are up 24% nationwide and 40% of those bankruptcies are from the Midwest. Nationwide net cash farm income is down 9% and the Great Plains is seeing a 16% drop. The one factor that is going to make many wheels squeal is the working capital; cash on hand that is used to pay the expenses. USDA-ERS forecast this to drop 15% in 2020.  There will have to be some grease in 2020 and it will be MFP III payments.

Even though the administration says there will be no more MFP payments remember to ask yourself, is the year divisible by four and does it fall on a presidential election year. If it does, it might not be all about ifs.

Aaron Krauter
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