Amid Trade Deal Questions, MFP Third Tranche is a Must
February 3, 2020 When Trump Administration officials announced the Phase 1 Trade Deal agreement with China in mid-January, U.S. farmers were understandably relieved. The cotton industry, in particular, had been negatively impacted by the trade dispute with China since the first tariffs were imposed in the summer of 2018. Finally, many of us thought, some relief.
Interestingly, though, the markets did not immediately respond. After the deal was announced, many commodity markets were still trading in narrow, bearish windows. Why would they not respond to such seemingly bullish news on the trade front?
For starters, many remain skeptical that the Chinese will comply with the Phase 1 deal. They have reneged upon similar ceasefires in the past. In May of 2019, a similar deal was in place before, according to U.S. Trade Representative Robert Lighthizer, the U.S. saw an “erosion in commitments by China.” For their part, the Chinese claimed it was the U.S. which was changing the framework of the agreement.
Whatever the case, that preliminary deal fell apart and the volleys of tariffs and blustering rolled along for the duration of 2019. So it’s somewhat understandable that the markets would be somewhat skeptical of the new Phase 1 deal. At some point the townspeople will stop believing the boy who cries wolf.
One headline that emerged from the initial announcement of this Phase 1 deal suggested that the third and final tranche of Market Facilitation Payments was in limbo in the wake of the new deal. The payments from the program were to be doled in three parts. But the third and final payment was delayed into January, and then, suddenly, was left in the balance.
When originally announced, the MFP program hinged on the condition that payments would only be made as long as no deal had been reached. Naturally, once the Phase 1 agreement was announced, growers became concerned that third tranche would never come.
“My expectation is that the president will direct when they fulfill that third tranche of the MFP payments,” said USDA Ag Secretary Sonny Perdue in a January 17 interview with AgDay’s Clinton Griffiths.
Let’s all hope that Secretary Perdue’s expectations are fulfilled. It’s not hard to imagine a worst-case scenario wherein China only partially complies with the Phase 1 trade deal. If planting time comes with limited additional purchases from China, and thus no price relief in the commodity markets, then that third tranche of payments will be an absolutely vital lifeline. If that turns out to be the case, our farmers will be dealing with nearly two years of bearish prices.
As of this writing, that third payment had yet to be addressed in an official capacity by USDA or the Trump administration. Hopefully, they will soon confirm its delivery. Planting season is right around the corner. And after two years on the front lines of the trade war, this is no time to leave U.S. farmers in the lurch.
GET THE NEWSLETTER TODAY!
