Inside D.C.

Will these gifts keep on giving?

USDA did its best last week to bring a little early holiday cheer to producers.  It’s all fingers crossed these days that the administration delivered gifts that will keep on giving after five years of depressed world demand and crushing on-farm income.

First, the department has higher expectations for U.S. agriculture exports in a world market plagued by overproduction.  USDA tempered that holiday cheer by explaining its $139-billion forecast for the coming year is 3% higher than this year and the highest since 2016 but only because U.S.-China trade tiff is doing less damage to U.S. producers than originally expected or feared thanks largely to increasing pork and soybean sales to the world’s second largest economy.   

While the FY2020 fiscal year begun October 1 now carries a forecast of $11 billion in general U.S. sales to China – up from a projected $7.4 billion in August – that annual projection is still less than half of the $21 billion in pre-tariff tantrum annual U.S. ag product purchases by the Chinese. 

Last week’s delivery is very much a bad news/good news kind of deal, as in “The bad news is you’re bleeding a lot; the good news is the blood flow is less than we expected.”

The good news includes USDA’s expectation China sales will continue increasing. The bad news includes word the rest of the planet’s demand for U.S. ag production is stable to lower.  On word the House may receive a formal U.S.-Mexico-Canada Agreement (USMCA) draft implementing bill from the White House as early as this week, sales to Canada and Mexico are seen unchanged.  That’s good news.  However, Japan and Korea together are forecast to cut their purchases $800 million in the year ahead.

Based in part on this half-a-loaf scenario, USDA says net U.S. farm income will rebound this year to $92.5 billion, a 10% jump from 2018, and the highest level since 2013 when overall income hit a record $123.7 billion.  That sounds good and in fairness, a portion of the credit for increasing income is stronger commodity prices, but drilling down reveals that between USDA’s crop insurance payments and “direct farm program payments” – the bucket which includes conservation payments, farm program supports and Market Facilitation Program (MFP) trade war aid checks – the government this year is responsible for a whopping 31% of all net farm income, the highest percentage share since 2006.

USDA says MFP payments will hit about $14.5 billion this year, including the final tranche of 2018 payments and the two payments mailed out by USDA in 2019.  The government’s 31% share of on-farm income breaks down into $6.5 billion in crop insurance assistance, with direct federal payments totaling $22.4 billion. 

By the numbers, the department’s final 2019 farm income projection includes a $2.2-billion jump in crop and livestock receipts, with corn price spikes offsetting declines for soybeans and wheat.  In the livestock portion of the forecast, expected to be “marginally higher,” milk and hog receipts have increased while poultry and egg prices have dropped. 

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