May 12, 2020

Farmers’ hopes for respite from Trump-era struggles fade amid pandemic
The Washington Post
By: David J. Lynch, Annie Gowen and Laura Reiley

President Trump promised this year to deliver a financial bonanza for American farmers, boosted by two historic trade deals that would free them from their dependence on government bailouts.

Instead, as the local Wendy’s runs out of hamburgers and some shelves at Costco lie bare, farmers are forced to euthanize millions of hogs and chickens, give away tons of unwanted potatoes, and pour out enough milk to fill a small lake. The closure of most U.S. restaurants amid the covid-19 pandemic has thrown the nearly $2 trillion food industry into chaos, convulsing specialized supply chains that are struggling to adjust.

From farm gate to grocery aisle, the incredible tumult of the past two months is the fault of a microbe the president has dubbed the “invisible enemy” — and what critics say has been his erratic response to its attack. The health crisis also has exposed an agricultural economy that despite repeated injections of taxpayer support finds many farmers under growing and unexpected financial pressure.

“It’s going to be years before we return to where we were,” said Ryan Cranney, a potato farmer in Burley, Idaho, who said he faces losses of $3.5 million.

It was a triumphant president who strode onstage at the Austin Convention Center on a Sunday evening in January. Addressing an annual gathering of American farmers, he boasted about a pair of historic trade deals that would unleash a surge of lucrative orders for their soybeans, wheat and corn.

“I’ve told everybody: ‘You got to buy a lot of land, and you’ve got to get much bigger tractors right now,” Trump said. “The best days for America and the best days for America’s farmers and ranchers are yet to come.”

Four days later, and nearly 8,000 miles away, Chinese authorities struggling to control a savage respiratory virus sealed off Wuhan, a city of 11 million people. The unprecedented lockdown drew worldwide attention as evidence of an increasingly dire emergency.

The draconian action also set in motion a chain of events that obliterated the president’s sunny forecast. Instead of the record earnings he predicted in Austin, farmers this year face losses of more than $20 billion, according to the University of Missouri’s Food and Agricultural Research Institute.

Expectations of massive Chinese orders for American crops under the trade deal Trump signed shortly before traveling to Austin are clouded by an escalating war of words between Washington and Beijing over the novel coronavirus. With pandemic-related restaurant closures disrupting commercial links, farmers are being forced to plow under their crops and destroy their livestock rather than bring them to market.

Some analysts say only extraordinary federal aid will enable farmers to continue making their loan payments as the economy struggles to recover from the covid-19 pandemic. Prices for commodities such as corn and wheat have dropped since March by double-digit percentages.

“This is the worst I’ve ever seen it. And I’ve seen some very bad times,” said Scott Glezen, 43, a dairy farmer in Lisle, N.Y.

This wasn’t how 2020 was supposed to play out.

As the year began, farmers were leaving behind the epic rainfall, blizzards and Arctic temperatures that had made a mess of planting and harvesting in 2019. After two years of Trump’s tariffs and retaliation by U.S. trading partners, they expected finally to reap the benefits of the president’s unconventional trade policy.

“You name it; we’ve been through it,” said Zippy Duvall, president of the American Farm Bureau Federation, which hosted the president in Austin. “We thought this would be our year to kick up and get back to normal. But it’s very difficult in agriculture right now.”

The highest hopes rested on China’s commitment to roughly double over the next two years purchases of U.S. farm goods, including beef, pork, poultry, seafood, soybeans, rice and animal feed. But Trump also touted a provision in the new North American trade agreement that required Canada to open its dairy market, which was expected to produce a modest $300 million gain for American farmers.

Before the pandemic hit, Glezen, a seventh-generation dairy farmer, anticipated his first year in the black in four years. Milk prices, which had been below the cost of production since 2015, inched higher in the second half of 2019.

But in April, the Agriculture Department, which did not respond to specific questions for this story, cut its price forecast for milk by one-quarter. The nationwide move to shutter schools, restaurants and other businesses caused an immediate glut in milk supplies that normally would have been delivered to such institutions.

Staff cuts and workers testing positive for covid-19 disrupted transportation and forced the shutdown of two major processing plants outside New York City, he said.

In late March, Glezen, who also serves as the president of a five-member co-op of dairy farmers, was told by the Missouri-based marketing firm that distributes their output to start dumping milk. On some days, he has dumped up to half the milk his cows produced into his farm’s manure lagoons. On the worst days, he dumps all of it.

“It’s something you can barely stand to watch,” he said. “When we see that product going down the drain, it’s painful to us.”

Support from farmers was critical to Trump’s winning coalition in states including Iowa, Wisconsin and Florida. In 2018, as Chinese retaliation for his tariffs cost them export sales, the president rushed to make them whole.

Even for an industry that annually receives several billion dollars worth of public backing — for crop insurance, income and price support payments — the latest financial safety net has been remarkable.

Over the past two years, Trump secured congressional approval of $28 billion to help farmers suffering from what USDA called “unjustified foreign retaliatory tariffs, resulting in the loss of traditional export markets.”

Last month, lawmakers provided an additional $19 billion to offset the economic damage caused by the pandemic. A further $14 billion will become available in July for the Commodity Credit Corporation to give farmers additional help.

“I have done more for farmers and ranchers than any President in history, and it has been my honor in doing so!” the president tweeted on May 1.

The latest round of aid is designed to fill a financial hole that will top $20 billion this year, according to the University of Missouri’s Food and Agricultural Research Institute. Economist Seth Meyer, the institute’s associate director, said that figure likely understates farmers’ losses since it assumes a rapid V-shaped economic recovery, which looks unlikely.

It also does not take into account the supply chain disruptions that have upended Cranney’s Idaho potato farm.

In his hometown of Burley, where the Cranney family has farmed since the 1940s, stands the largest french fry plant in the world: McCain Foods Burley Plant. Cranney sells the bulk of his crop to McCain, which in turn supplies restaurants around the country.

As the number of covid-19 cases began rising in March, Cranney’s orders fell. Over a three-day period in the middle of April, he did not sell a single box of potatoes.

McCain’s restaurant orders had evaporated amid the widespread closures, forcing the company to put processed fries into frozen storage. When storage filled up, McCain idled its factories and stopped ordering more potatoes from Cranney.

Americans are still eating french fries. They’re just not eating them at restaurants. Cranney can’t easily pivot to supplying grocery stores because consumers don’t want his 50-pound boxes.

“We send 10,000 boxes a day through our packaging facility,” he says, “and now we’re trying to shove it all through a little side stream bagger machine for retail.”

Cranney also grows seed potatoes, but no one is buying those either. Faced with the cost of storing them for months, he opted to give them away. People from nearby towns came and emptied his fields, taking 10,000 bags, or 1 million pounds worth of unwanted potatoes.

The government’s remarkable largesse insulates the farm sector from the worst repercussions of the trade war and devastating pandemic. While generous, the payments are a blunt tool.

Starting in 2018, administration tried to compensate for what farmers lost in the trade war. But the formula it used, which varied by county and crop, could not provide remedies tailored to individual farms.

“The trade damage estimates the USDA calculated likely substantially overestimated the impact for some U.S. producers (and potentially underestimated the impact on others),” concluded a 2019 American Enterprise Institute study by Joseph Glauber, USDA’s former chief economist.

Like many government programs, the trade war bailout also grew in its second year, expanding to 41 commodities from 9. Considering the history of previous farm aid that started as a temporary measure, some analysts worry the last three years of unusual help could harden into something more permanent.

“There’s a genuine concern that these additional moneys might get embedded as part of the baseline spending for the next year,” said Vincent Smith, an agricultural economist at Montana State University. “Does that make the agriculture sector more dependent on the federal government for revenue? Yes.”

Scott Blubaugh, 55, a cattle rancher and crop farmer in Tonkawa, Okla., said last year’s trade war payments covered only about 60 percent of his lost soybean sales. The $19 billion the Cares Act allocates to pandemic relief is “completely inadequate,” he said.

“If Congress does nothing more than what they’ve done to this point we will have a very bad crisis in agriculture that will be equal to the 1980s,” he said. “We’re going to see a mass exodus of farmers and ranchers if they don’t do something. We don’t want a government check, but this may be the only way to keep some of these people going another year.”

The cattle market has suffered a 38 percent decline in the price of live cattle in his state since February, exacerbated by the closures of a dozen large meat packing plants across the country amid the spread of covid-19, he said.

The stress is palpable.

As president of the state’s Farmer’s Union, Blubaugh take referrals from the national Farm Aid hotline. On May 1, his state group set up its own suicide hotline for farmers with three trained ranchers to answer emergency calls. The memory of one recent call stayed with Blubaugh.

“He had the gun loaded, and his wife called Farm Aid,” he said. “He was crying and just saying, ‘I just want out of this.’”

Total farm debt is projected to top $425 billion this year, “near its peak in the early 1980s,” Robert Johannson, USDA’s chief economist, said in a February speech. The industry’s debt-to-asset ratio is at its highest level since 2003, he noted.

“We are talking to the banks about refinancing, which is a huge challenge right now,” said Cranney, the Idaho potato farmer. “Some of the ag banks are in a tight spot, and while interest rates are at an all-time low, there’s a limit to the amount of money they have available to give. So we’re looking at huge increases in rates for any money that we’re borrowing.”

Indeed, a decade of ultralow interest rates has allowed farmers to roll over their debts and repay them over longer periods. But that can’t continue indefinitely, according to Nathan Kauffman, an economist with the Federal Reserve Bank of Kansas City.

Working capital, the funds farmers have to operate their businesses and pay their bills, has been in steady decline for nearly a decade. Even before the pandemic, the USDA forecast this year’s figure would be less than one-third the 2012 level.

“The government payments that have been made — this is the third year — provided significant support. But they haven’t changed the fundamentals of the market,” Kauffman said.

Lenders are worried about farmers’ abilities to make their debt payments, according to a fall 2019 survey by the American Bankers Association and Farmer Mac, the Federal Agricultural Mortgage Corporation.

Only stronger demand, likely from higher exports, can improve the farm sector’s balance sheet, according to Kauffman.

There have been encouraging signs. Through early April, China has ordered 880,000 metric tons of corn, topping the 2017 pre-trade war figure, with an additional 504,000 tons already booked for the marketing year that begins Sept. 1, according to the Agriculture Department.

Sorghum sales also have been strong. In December, U.S. pork exports to China hit a monthly record of 102,000 metric tons.

But the president and his advisers have grown increasingly harsh in condemning the Chinese government for allegedly covering up the initial coronavirus outbreak and refusing to cooperate with efforts to investigate it.

The Chinese government, for its part, has mounted a global disinformation campaign blaming the United States for the virus and mocking the president for an ineffectual response.

As the animosity builds, and the economic disruption in both countries lingers, the Farm Bureau says China needs to accelerate its buying to meet the trade pact’s timetable. New orders this year are supposed to reach $40 billion.

David Herring of Lillington, N.C., who raises about 700,000 pigs each year, is among those growing nervous about Beijing’s intentions.

“It’s been so fluid since the agreement was signed with China. Early on we were truly optimistic about the $40 billion in ag products,” he said. “But everything has changed drastically since covid-19 hit.”

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