Sarah and Marty Krocak look over their year end financial records before learning they were nearly ... [+]
China has promised to buy more farm commodities in their phase one trade agreement. And that takes Washington off the hook from the billions it has spent helping farms impacted from China closing its market to them, particularly soy farmers. That aid money ends in February. Farmers think it should remain.
The final tranche of Market Facilitation Program payments (China and MFP Tranche No. 3) was distributed this month and is forecast at $3.7 billion, down 75%, or nearly $11 billion, from 2019. Combined, gross cash income in 2020 is forecast at $430.9 billion, down a little under 1% from last year.
If you want to measure how much faith farmers have in the phase one deal taking over from where Washington left off, just read what the American Farm Bureau Federation has to say about it on their website on Tuesday.
The Farm lobby all supported the continuation of the MFP payments. But Agriculture Secretary Sonny Perdue told them not to count on it in 2020, citing trade deals with Japan and the passing of the new Nafta, called the U.S. Mexico Canada Agreement.
President Donald Trump shakes hands with Sonny Perdue, U.S. Secretary of Agriculture. Farmers will ... [+]
The Farm Bureau’s Vice President Vander Wal said his group’s voting delegates that also supported MFP are saying “show me the money” to Perdeu.
“We’re very, very happy the president has the China phase-one agreement in place, and the USMCA in place, but no products have moved, (China) implementation hasn’t happened yet,” Wal reportedly said. “When we get down the road, there is nothing we would like better than to really see these agreements kick in and show us some expanded market opportunities, and hopefully the markets will come back...rather than having the government make up for those trade disputes and the damage to the market they’ve caused.”
The Farm Bureau is still supportive of the Trump Administration, despite the trade war’s impact on farmers.
Farm sales are not entirely in the gutter because of China.
U.S. net farm income, a broad measure of farm profitability, is currently forecast at $96.7 billion, up 3.3%, or $3.1 billion, from the prior year. If realized, net farm income in 2020 would represent the fourth consecutive year of higher net farm income and would be 55% higher than the decade low of $62 billion in 2016.
However, looked at another way, net cash income, which does not include adjustments such as depreciation, or inventory adjustments that transfer the value of inventory over a number of years, is currently forecast at $109.5 billion, down 9% from 2019.
A machine loads soybeans into 'Stella Pearl' cargo ship headed to China at the Tiplam terminal in ... [+]
Maybe that’s some “fuzzy math” farmers are picking at to keep the aid money flowing, but all told, consensus among agribusiness here is that phase one is good; still not seeing the results.
As part of phase one, Trump agreed to reduce the tariffs on $120 billion worth of Chinese goods from 15% to 7.5%. Tariffs on $360 billion of goods imported from China at an average tariff rate of 21% will remain in place.
The Trump Administration said it will not lift those tariffs until the two countries agree on a Phase 2 deal. This isn’t likely to happen prior to the November election and could take years after that, depending on who occupies the White House.
This means buying Chinese goods will continue to be costlier. If it takes too long to remove those tariffs, American business may decide to spend less in China and vice versa.
“For Syngenta specifically, we know it is very likely we will pay more in tariffs in 2020 than we did in 2019,” says Mary Kay Thatcher, head of Federal Government relations for Syngenta in Washington, D.C. “Many of the products we import from China remain on the tariff lists.”
On the question of whether China can live up to its commitment to buy $32 billion more in farm commodities this year and again in 2021, Thatcher says “probably not”, unless they exempt U.S. products from tariffs.
China announced tariff reductions on February 6, including cuts to tariffs on soy, pork and seafood.
According to the Farm Bureau’s economist, farm income will improve if there are additional sales across the board for farm commodities going to Canada, Mexico, China and Japan, among others. But farm income could face more pressure if the China sales do not materialize as expected at a time when key export commodities like soybeans remain at bargain-basement prices.
