Give trade agreements time to work, says FCA chief
The chairman of the Farm Credit Administration appealed for Farm Belt patience on Trump trade agreements on Wednesday. “The groundwork has been laid for trade normalization and improved farm prices,” said Glen Smith during a House Appropriations subcommittee hearing, referring to the Phase One agreement with China, the USMCA, and revisions to trade pacts with Japan and South Korea. “So I am cautiously optimistic about an improvement in agriculture as we enter a new decade.”
Soybean futures prices have declined since the Sino-U.S. agreement was signed on January 15, and no major grain sales have been announced to China, formerly the No. 1 customer for U.S. farm exports. The agreement calls on China to buy $40 billion a year worth of U.S. food, agricultural, and seafood products through 2021.
“The markets have taken the stance, ‘Show me.’ They need to see ships going overseas with our products,” said Smith, who had a career as an Iowa farmer and an agribusinessman before being appointed to the FCA board in 2017. He dismissed as premature speculation of a third year of trade war payments through the stopgap Market Facilitation Program. “It will take time. … I think the attitude needs to be, ‘Let’s see if this will work.’ ”
In written testimony, Smith said 2019 was a difficult year for farmers and ranchers due to the trade war, large commodity stockpiles, weak prices, and adverse weather that delayed spring planting and the fall harvest in the Northern Plains and eastern Corn Belt. “Farm subsidy payments helped, most notably crop insurance and MFP payments, and in many cases made the difference between net operating loss or profit,” he said.
“With large global supplies and ‘normal’ weather, major crop prices in 2020 are expected to remain low,” said Smith. “This could limit attractive price opportunities for U.S. farmers. Livestock and dairy returns are likely to be generally positive in the near term but could be further supported by trade developments. High-cost producers and those with significant leverage will continue to face significant financial pressure.”
The Farm Credit Administration is the regulator of the federally chartered Farm Credit System of banks and direct-lender associations and the Federal Agricultural Mortgage Association, which provides a secondary market for agricultural mortgages, rural housing loans, and rural utility cooperative loans. The Farm Credit System is in satisfactory condition overall, Smith said, although the FCA has increased supervisory oversight of seven institutions, holding 2.5% of the system’s assets, due in part to weaknesses in agricultural sectors, he said.
In discussing the 2020 outlook for agriculture, Smith pointed to signs of increasing financial stress, such as a rise in nonperforming and delinquent loans. “The numbers, thankfully, are not troubling yet,” he said.
“Dairy is a problem area, and that is nationwide. Forestry was impacted profoundly” by the trade war but did not receive MFP payments. “Grain crops continue to see duress.”
To watch a video of the House Appropriations subcommittee hearing or to read Smith’s written testimony, click here.