Trump intrudes on spring planting for second year in a row

Besides weighing potential market prices against the cost of fuel, fertilizer, and seeds, farmers have a new factor for their planting decisions: Will it assure them of a trade war payment? President Trump's suggestion that if his trade deals with China and other nations are slow to bear, "aid will be paid by the federal government," could encourage farmers to plant more land this spring than would otherwise be justified.

• READ MORE: If exports rise, farmers won't need trade aid, says Perdue

Payments were tied to crop and livestock production in the two previous versions of the Market Facilitation Program so growers could assume they would be this time, too. USDA provided no details following Trump's announcement on Twitter on Friday. A day earlier, the USDA projected ag exports to China this fiscal year would be one third of the target set for food, agricultural, and seafood products in the Phase One agreement that took effect 10 days ago.

"If MFP3 is a reality, USDA will have to find a way to make those payments as production-neutral as they can," said Joe Glauber, former USDA chief economist. Trump roiled farmers' decision-making last spring by announcing in mid-May, while millions of acres of land were yet to be planted, that aid in amounts "far larger than China buys now" was forthcoming. USDA eventually announced, after the planting season ended, varying payment rates per county, based on the trade war's impact on crop revenue.

"But you had to plant a crop to be eligible for payments," said Glauber. "Assuming normal weather, that would imply higher plantings than you might get without the payments. But at least if payment rates are the same within the county, you shouldn't get gross distortions in crop plantings."

• READ MORE: Trump says third year of trade war payments is possible

The goverment is more likely to use a format like 2019 than its 2018 approach of dramatically different rates for commodites, with soybeans getting the largest support of all, said Glauber.

On Twitter, Trump said, "IF OUR FORMALLY TARGETED FARMERS NEED ADDITIONAL AID UNTIL SUCH TIME AS THE TRADE DEALS WITH CHINA, MEXICO, CANADA AND OTHERS FULLY KICK IN, THAT AID WILL BE PROVIDED BY THE FEDERAL GOVERNMENT, PAID FOR OUT OF THE MASSIVE TARIFF MONEY COMING INTO THE USA!" In actuality, the aid would come from the Treasury, funnelled through a Depression-era agency at USDA that has broad powers to support agricultural prices and farm income.

"The president's tweet was a surprise to us," said Agriculture Undersecretary Ted McKinney during a discussion at USDA's annual Ag Outlook Forum. "He will make that decision and we will go with that decision."

Gregg Doud, U.S. chief agricultural negotiator, brushed aside a question of when Chinese purchases would accelerate. That "will happen when a buyer and a seller agree on a contract," he said. China is obliged to buy $40 billion of U.S. food, agricultural, and seafood products this year and in 2021 under Phase One. No large grain purchases by China have been reported since the agreement was signed on January 15. The USDA projects larger pork, soybean, and cotton sales to China in the months ahead.

Trump's tweet contradicted Agriculture Secretary Sonny Perdue, who advised farmers to plant for the market because a 2020 version of MFP was unlikely. Asked if he would reconsider, Perdue told reporters on Thursday, "Probably not," despite the estimate of $14 billion in ag exports to China this fiscal year, which ends on September 30, an increase of $3 billion from USDA's November estimate.

To date, the administration has sent $14.2 billion in cash to producers to mitigate the impact of the trade war on 2019 production on top of $8.6 billion for losses on 2018 crops and livestock.

The National Farmers Union, the second-largest U.S. farm group, urged Perdue to seek ideas from Congress in formulating a new payment program that would improve U.S. agriculture in the long run. "MFP was used as a quick fix … and did not tackle larger problems in the farm safety net," said NFU President Roger Johnson. "Our members appreciate the much-needed help MFP provided in the last two years, but also know that this program must do better."

The Phase One agreement is novel in that it sets dollar targets for trade. In the past, trade agreements usually specified quantities of particular commodities that must be purchased.