The marketing years of 2018/19 and 2019/20 will go down in history as being a pivotal time in U.S. agriculture. A budding trade war between economic superpowers and extreme weather patterns were key underpinnings of a nearly-unprecedented period of ag market turbulence.
Given the extraordinary geopolitical and atmospheric events, the U.S. federal government launched a collection of programs designed to support hard-hit ag commodity producers. Dubbed farm aid 2018 and 2019, the assistance was extensive and gave many struggling farmers the means to weather a particularly nasty storm.
Farm Aid 2018: Managing Trade War Fallout
Delivering on campaign promises, President Donald Trump upped the ante on comprehensive trade reforms with partner China during the summer of 2018. Citing concerns regarding trade deficits and domestic cybersecurity, the Trump administration enacted a collection of tariffs on Chinese imports. The result was quick retaliation on China’s behalf, featuring fresh levies on U.S. agricultural imports.
While international trade wars are nothing new, this one proved particularly important to U.S. ag producers. Losing access to the world’s largest consumer market was daunting ― in order to manage the immediate fallout, farm aid 2018 was created and launched.
If you Google “farm aid 2018,” you’ll likely get results pertaining to the annual Farm Aid festival designed to raise funds for ag producers in need. While the event has generated $53 million since 1985, the Market Facilitation Program (MFP) of 2018 brought considerably more capital to the table:
- Up to $12 billion in federal funds was authorized for appropriation to the ag sector. Upwards of $6 billion was earmarked for immediate distribution.
- Initial aid to farmers impacted by tariffs totaled $4.7 billion in payments.
- Direct government purchases of $1.2 billion worth of commodities deemed to be “unfairly” targeted by Chinese tariffs was to be executed.
- Up to $200 million was to be spent on bringing new foreign markets online for U.S. ag exports.
Under MFP 2018, the hardest hit ag sectors were targeted. Funds were directly allocated to producers of soybeans ($1.65 per bushel), hogs ($8.00 per head), wheat ($0.14 per bushel), and sorghum ($0.86 per bushel).
Farm Aid 2019: Flood And Tariff Support
Unfortunately for ag producers, 2019 proved to be more of a challenge to successfully navigate than 2018. A resolution to the U.S.- China tariff standoff proved elusive and historic flooding slammed the Midwest. Subsequently, the U.S. government expanded the scope of farm aid 2018 extensively.
For farm aid 2019, the Trump administration pledged $16 billion in relief funds to be distributed to producers. In addition, the door was left open for another $4 billion in resources, if needed. Here are several of the parameters governing farm aid 2019:
- Beginning in July 2019, $14.5 billion in direct payments to producers was to be made in three separate rounds.
- The U.S. government was to purchase $1.4 billion of select foodstuffs.
- In an attempt to expand foreign trade, $100 million was designated for developing new international markets.
One of the key differences between farm aid 2018 and 2019 was the potential impact upon planting preferences. Due to a severely delayed planting season, many producers pondered the benefits of cultivating soybeans instead of corn to realize a greater net benefit from the farm aid package. While the long-term ramifications of 2019 spring planting have yet to be seen, industry insiders project 2020/21 soybean and corn planted acreages and stocks to be impacted by the extreme flooding and expanded farm aid payouts.
Fundamentals Rule in the Ag Markets
If you’re a commodity producer or trader, then you know how timely fundamentals can influence asset pricing. Staying abreast of the constantly evolving ag sector dynamic is an important aspect of achieving your long-term goals in the marketplace.
For more information on the current geopolitical and environmental market drivers facing the commodities, contact the team at DanielsAg today. From expert insights to building your own customized marketing plan, DanielsAg has you covered.