As farmers across the country impatiently wait for tariff aid payments to be made available, one analyst warns that they won’t solve the problem.
USDA released details of the Tariff Aid package early this week. Soybean, sorghum, wheat, corn, cotton, pork and dairy producers are eligible for payments that range from $1.65 per bu. to 1 cent per bu. on grains.
“It will help short term but it doesn't relieve the problem which we have physically got rid of the inventory,” Bob Utterback of Utterback Marketing told U.S. Farm Report Host Tyne Morgan. “Long-term this is a one-time shot and if it’s next year, what are we do? I think there's a lot of uncertainty about that. I would rather we got rid of the corn and beans somehow rather than giving the payment.”
Soybean farmers will be paid $1.65 on 50% of the production they can prove for 2018.
“That's the first payment. If you notice the fine print, it said there may be a second payment in December if USDA decides it’s necessary,” explains Alan Brugler of Brugler Marketing. “Which is a code word for saying ‘do we get trade agreements or other market adjustments before then and make it not necessary.’ They're borrowing the money from Treasury. They just as soon not spend it if they don't have to. Make no mistake, it's an income support. Not a price support.”
Utterback, does not expect the payments to change producer behavior.
“I think farmers will take the money, put the corn in the bin, beans in the bin and store it and hope for a weather scare event,” he said. “Same old behavior, and so, we're not getting rid of the structural problem of too much supply for the short-term demand. And if we don't have a trade explosion or a weather event of significant proportion, and we get the five to 7 million acres in corn, corn is going to be in the dumper next fall, so bad it will drive farmers out of production.”
According to Elaine Kub, author of Mastering The Grain Markets, it's going to be extremely difficult for farmers to plan for next year because of the trade situation.
“What are you going to book your seed sales at because you don't know whether there will be extra payments made or when the trade scenario will normalize it absolutely hamstrings any sort of planning,” she says.
Brugler advises farmers to look at their average annual price range.
“Expect that you're going to see that price move and sometime during the year, it will shift based on where the supply and demand goes,” he says. “That's the problem. The S&D tables are junk right now, because we don't know what the trade is going to be, right? But I also want to suggest you don't overemphasize the trade aspect, because the world is round. The supply doesn't leave the planet, neither does the demand.”
Brugler advises against over emphasizing the impact of the trade situation on actual consumption of grains.
“We're moving the beans, just not to China,” he added.