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Farmers consider asking for government help as trade war worsens downturn that started years ago

September 8, 2018

Marshall, Minn. Greg Boerboom pulled on dark blue coveralls and a pair of boots and stepped into one of his farms nurseries, where skittish piglets spend six weeks after theyre weaned.

Hell break even on the little white pigs only because he locked in a price months ago on the futures market, before President Donald Trumps tariff policies sent many commodities into sharp decline. Farmers who didnt make that bet will lose about $30 a head, and futures prices for next springs pigs are below the cost of raising them.

You just hope it rebounds soon enough, Boerboom says.

The escalating trade war is imposing new burdens on Minnesotas vast and economically important agricultural sector. Farmers have already endured almost five years of marginal profits as they produced record volumes in summer after summer of good weather. Now, the trade war appears likely to tip them from small profits to sizable losses.

Many are reluctantly preparing to take what they consider a distasteful step: turning to the government for help. Last Tuesday, the U.S. Department of Agriculture started accepting farmer applications for $4.7 billion in emergency aid aimed at helping them through this year.

But the market is already signaling danger for 2019. Bankers who provide capital to farmers wont stand for losses and, instead, will likely force many farmers to sit on the sidelines. As many as 20 percent of farmers in the Upper Midwest wont be able to get credit to finance spring planting, barring a miracle turnaround in prices, said Al Kluis, a commodity broker in Wayzata.

Farmers have lost big foreign markets like China and Mexico, which placed taxes on their products after Trump imposed tariffs on steel imports and pushed to recraft other trade deals. As a short-term response, the Trump administration responded by creating the aid program.

Farmers can apply for aid if their adjusted gross income is less than $900,000, and must work with their local Farm Service Agency. Aid is capped at $125,000 per farm. Grain farmers must wait until harvest is complete. The USDA press office late last week said the number of applicants in the first days of the program wasnt available.

For Boerboom, $125,000 will be small consolation. He and his three children sell 300,000 hogs per year. At current prices, their losses in 2019 would be in the millions of dollars. Aid to farmers will buy some time, he said, but the reopening of trade is the real solution.

Hog producers in general just want the whole tariff issue solved and go back to open trade, Boerboom said. Thats the bottom line.

Soybeans hardest hit

More than three-quarters of the $4.7 billion committed to help farmers get through the trade war is earmarked for soybean farmers.

Soybeans are the second-largest crop in Minnesota behind corn, and farmers export close to half of the beans they harvest, mostly to China. Chinese tariffs on imports of the crop have driven an already down soybean market into the ground. Prices started falling from over $10 per bushel in May and are now about $8.30 a bushel, which is about $1 below break-even for farmers.

Most farmers have crop insurance that will help cover the loss when they sell their harvest later this fall, and about 40 percent of U.S. soybeans are sold ahead by farmers who hedge with the futures market, Kluis said. But many farmers did not hedge.

The older farmer, the hobby farmer, the less sophisticated farmer, wow, thats a tough position to be in, Kluis said. My heart goes out to them.

Farmers in western Minnesota and beyond are at a specific disadvantage. In addition to near 10-year lows in soybean prices, the gap between the price a grain elevator will pay for soybeans and the futures price at the Chicago Board of Trade known as the basis is widening.

Grain elevators that used to load trains bound for ships in the Pacific Northwest that would carry the beans to China now have to find new markets. Those elevators are paying even less for beans than grain elevators in eastern Minnesota.

If you haul out to an elevator near Willmar or Morris, its $1.20 under, Kluis said. With those soybeans not going to China, the basis is at some of the worst levels Ive ever seen.

Ambivalent but receptive

Brad Hovel, a grain and hog farmer near Cannon Falls, doesnt like to ask the government for extra help but said he will this fall. It is a necessary evil, Hovel said. We really arent for it, but we need to be able to stay viable.

The USDA will pay soybean farmers $1.65 per bushel harvested. Unless prices dive sharply lower in coming weeks, that amount should help many of soybean farmers get above the break-even point.

Since farmers wont be allowed to make an application until after the harvest, no lines are forming yet at Farm Service Agency offices, but anyone who grows soybeans will probably apply for money, Hovel said.

These dollars are going to help bridge the gap, Hovel said. Theyll flow right through us back into our communities supplies, maintenance, repairs on our equipment, property taxes.

For hog farmers, there is less of a government safety net no federally subsidized insurance and the aid payments will be $8 per hog, also capped at $125,000 per farm but also greater financial sophistication. The pork industry was culled and consolidated in crisis after crisis in the 1990s and 2000s. Most hog farmers are already managing their risk the way the Boerbooms are, by locking in prices ahead of time on the futures market.

The grain side is probably in a tougher situation than the swine side is today, said Mark Greenwood, a Mankato-based executive at Compeer Financial, one of the nations largest farm credit associations. Swine producers have done a really good job of managing through a lot more volatility than I would say the grain industry.

Hog farmers got a lifeline in the futures market in recent weeks thanks to an outbreak of African swine fever in China. February and April contracts for hogs have both risen by more than $20 per hog in the past month on fears that the contagious disease is widespread in China.

Farmers are willing to let the tariffs dispute play out, said Boerboom, the hog farmer near Marshall. If Trumps combative approach to international trade results in better trade deals for the U.S. no more Chinese steel dumping or theft of American intellectual property then the short-term pain for farmers will have been worth it, he said.

The farm community is still supporting Trumps policy, Boerboom said. But theres going to be a period of time when that trust and support runs out.

Adam Belz 612-673-4405 Twitter: @adambelz

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