Agricultural Uncertainty in 2018– Farm Policy and Trade

Three leaders provide insights on farm policy and trade ( ASFMRA )

Farmers are faced with additional uncertainty this year beyond the weather and the normal vagaries of the market. Congress is in the midst of debating the next farm bill as the 2014 bill expires at the end of September. Additionally, the Trump administration is in the middle of renegotiating the North American Free Trade Agreement (NAFTA) and other trade policies with most of our major trading partners.

After nearly two years of listening sessions and hearings, both the House and Senate Agriculture Committees have produced a farm bill. The House passed its version on a party-line vote 213–211 on June 21 after failing to pass it in May. The Senate passed its bipartisan version 86–11. The House bill makes few changes to the crop insurance program, as does the Senate Committee passed bill. And while the Senate floor amendments to cut, cap or means-test crop insurance were expected, they were not voted on. ASFMRA has been active with a broad coalition of farm and conservation groups to work against cuts to crop insurance.

What This Farm Bill Means To Agriculture
Neither bill makes significant changes to commodity policy and would provide modest help for farmers facing their third year in a row of depressed commodity prices. The House bill holds the Adjusted Gross Income test steady at $900,000, while the Senate bill would drop it to $700,000 for commodity and conservation programs. The House bill expands payment eligibility to qualified entities, first cousins, nieces and nephews, while Senator Grassley, R-Iowa, is expected to push for tighter actively engaged rules to qualify for payments on the Senate floor.

The major policy differences between the two bills are in the nutrition title, where the House pushes for tighter work requirements and the Senate does not. And in the conservation title, where the House eliminates the Conservation Stewardship Program (CSP) and plows the savings back in the Environmental Quality Incentives Program (EQIP) and the Agricultural Conservation Easement Program (ACEP). The Senate cuts both EQIP and CSP and puts the savings back into ACEP and the Regional Conservation Partnership Program. With the timing of the Senate passing its bill, there is still sufficient time to iron out the differences before the end of September.

Turning Attention To Trade
On the trade front, NAFTA talks were on hiatus until after Mexico’s July 1 presidential election. The White House has suggested approaching NAFTA talks bilaterally, strike a deal first with Mexico and then separately with Canada. The U.S. is seeking a “sunset clause” for the deal, perhaps at the five or seven-year mark, a change in dispute settlement rules, “rules of origin” regarding domestic content of automobiles, and changes to Canadian dairy policy. The Canadians show no sign of budging on their agriculture policy. Mexico and Canada are two of our largest agricultural trading partners and NAFTA is a key component to our agricultural trade balance.

U.S. tariffs on steel and aluminum are now in effect. The European Union, Mexico and Canada have countered with retaliatory tariffs, which are now in place. Japan and Russia have announced tariffs, while India, Turkey and China are also likely to impose retaliatory tariffs. Some of these retaliatory tariffs impact U.S. agricultural goods.

With regard to China, the U.S. announced on June 15
a 25% tariff on $34 billion worth of Chinese goods effective July 6 and an additional 25% tariff on $16 billion of Chinese goods effective in August. The Chinese countered immediately with tariffs on $50 billion of U.S. goods including agricultural products (soybeans, cotton, beef, pork, nuts and vegetables). The Trump administration then issued a threat of an additional 10% tariff on $200 billion of Chinese products. July 6 was seen as the informal deadline for the U.S. and China to reach an agreement to avert a trade war. And since then, ongoing developments are being reported daily causing great uncertainty. 

Commodity markets have dropped precipitously since Memorial Day. The only real surprise is prices did not dive sooner. Bumps in the road for prices were expected to be part of the trade negotiation process. Considering many commodities have positive fundamentals if trade problems are resolved, we can only hope that occurs sooner rather than later and can achieve long-term benefits. Passage of the farm bill will most likely not have an impact on commodity prices.

 

ASFMRA 2018 Conferece

 
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