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U.S. Seeks to Avoid Planting Distortions With New Farm Aid

Mike Dorning, Michael Hirtzer and Isis Almeida
U.S. Seeks to Avoid Planting Distortions With New Farm Aid

(Bloomberg) -- The Trump Administration unveiled its latest package to help farmers survive a trade war with China, adopting a model that aims to avoid influencing production decisions. Corn futures fell.

The program includes $14.5 billion in direct payments to producers. Aid for most crops will be calculated based on what is grown in each county rather than just individual farmers’ plantings, U.S. Agriculture Department officials said Thursday. Farmers can expect their first payments by July or August.

“The USDA is getting creative to avoid impacting planting decisions,” said Arlan Suderman, chief commodities economist at brokerage INTL FCStone Inc. “We don’t know the details of how they are going to make that formula work. The bottom line from a market standpoint is that it removes the link between planting decisions and the aid package. It focuses the market back on weather problems.”

American farmers are struggling to remain afloat as the tit-for-tat tariffs spat with China leaves soybeans from last year’s harvest piling up. For President Trump, appeasing his rural-voter base has become crucial ahead of the 2020 elections. The new round of benefits brings to $28 billion the total assistance the U.S. has announced for agriculture.

Farmers and ranchers “bear the brunt of this trade dispute disproportionately,” Agriculture Secretary Sonny Perdue told reporters in the call.

At a White House meeting with industry leaders, Trump said farmers will be “greatly helped” by the aid package. Farmers “have ups and they have downs and it’s a wild business, but you wouldn’t trade that for anything, right?” the president said. He vowed to roll back more rules next week.

Agriculture officials on the call declined to describe how they would compute trade losses but said they would be based on direct and indirect effects of tariffs imposed by China, the European Union and Turkey.

Producers of crops including corn, soybeans and wheat will receive a payment based on a single county rate multiplied by a farm’s total plantings to those crops in aggregate in 2019. Those per-acre payments aren’t dependent on which crops are planted in 2019, and therefore won’t distort planting decisions, according to the Agriculture Department. Moreover, total payment-eligible plantings can’t exceed total 2018 plantings.

Earlier this week, people familiar with the aid package said it was largely modeled on the market facilitation design used in the first round, including different payment rates for different commodities.

Republican Senator Joni Ernst of Iowa predicted at the time that payment levels would anger corn farmers, while traders speculated that the rate breakdown may favor soybean planting.

The model announced Thursday “avoids providing an incentive to plant soybeans to get a big payment,” said John C. Baize, an independent consultant, who advises the U.S. Soybean Export Council. “That is a good thing. It is a decouple payment so should avoid any WTO problems.”

Dairy and hog producers also will receive payments. The National Pork Producers Council welcomed the packaged, but urged Congress to quickly ratify the USMCA and continue working on a resolution of the dispute in China, where the spread of African swine fever is set to boost imports of proteins including pork, beef and chicken.

“The current situation in China represents a historic sales opportunity for U.S. pork," David Herring, president of the NPPC, said in a statement. "We look forward to continued work with the administration to restore favorable access to China, allowing U.S. pork producers to capitalize on this opportunity."

The $16 billion package also includes $1.4 billion in government purchases to be distributed through school lunch programs and local food banks. The USDA also allocated $100 million for export promotion.

When Trump first tweeted about the new aid package it was framed as government purchases of crops that would be shipped to poor countries. There was no mention of foreign allocations in the USDA’s statement Thursday.

“The net effect of the program is to just underwrite the farm economy with $14.5 billion of payments,” said Baize. “That will help the President in rural America with respect to the 2020 election. Clearly producers of some commodities that are doing fine will get the payments while others that are hurting because of the trade war will get less.”

(Updates with comments from Trump in sixth paragraph.)

--With assistance from Margaret Talev, Lydia Mulvany and Isis Almeida.

To contact the reporters on this story: Mike Dorning in Washington at mdorning@bloomberg.net;Michael Hirtzer in Chicago at mhirtzer@bloomberg.net;Isis Almeida in Chicago at ialmeida3@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, James Attwood, Reg Gale

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