We have another farmer that we would like to introduce
Todd Leake
Todd Leake Lives in Emerado North Dakota about 20 miles west of Grand Forks outside of the Grand Forks Air Force Base. With the help of his brother, son and of his wife Sue, Todd farms 1500 acres and grows Hard Red spring wheat, Durum wheat, soybeans, a variety of dry beans and sunflowers. Todd is a longtime DRC member who has advocated and farmed for years in North Dakota
The Nature of Farming
“Every farmer wants to get paid for producing versus just getting a check from the government. We don’t farm to get handouts”
-Bill Hejl
Any good farmer will tell you that the good years have to pay for the lean years if you want to make it long term in the industry. Every farm that starts up must come up with strategies to get around risk. Droughts can kill or reduce yields, floods can make it tougher to plant acres of crops or access your fields, and an early snow can make it impossible to harvest your crops. Farmers try to get around this by purchasing crop insurance to negate some of the risk. Bank loans provide constant cash flow under the assumption that the farmer will sell the crops at the end of the harvest season and pay off the loan. The result is a system that is a house of cards and these cards are set up on a foundation of two things that should always remain stable, market prices and stable markets to sell them in.
“The initial aid from the administration certainly helped pay the bills for a while. It allowed everyone to wait and see if the market would go up, and it rose to eight dollars locally by the end of February. In North Dakota we typically ship our soybeans to the Pacific Northwest. The freight rate to the Pacific Northwest has gone up to as high as a dollar twenty-five ($1.25) a bushel. It used to cost 50 cents to 75 cents to get the soybeans to market. So, it’s tough.”
–Bill Hejl
“We’ve got quite a big share of 2020 corn sold and I’m just really happy we have because some of those decisions weren’t easy. They weren’t prices that we thought were very good, but the markets have just been falling, looking for a bottom, and they just keep finding new ways to go lower because of the trade war.”
-Jim Dotzenrod
Two Strategies
When the trade war with China started the Trump administration’s plan was simple but short sighted. High protective tariffs were put on Chinese Imports to make American goods more attractive to American consumers. China then would have no choice but to come to the negotiations table and take whatever deal the Americans would give them. What this plan failed to take into account is that despite the fact that the United States is China’s largest trading partner, China is in no way completely dependent on their trade.
“I knew the trade war was gonna be impactful and immediate. I remember selling soybeans for a cash price of about $9.50 around February 2017. A few months later the price was down to $7.50. For me that’s an impact it’s $2 per bushel on soybeans, and obviously that has a cascading effect on other crops because as farmers move away from soybeans they plant more of the other crops dropping the market prices of the other crops due to oversupply.”
-Tyler Stafslien
As China grew in power it began investing in other nations across the world in search of diversifying markets and investing in ports across the world that they could control the terms of trade. If the United States was going to declare a trade war, then they would simply stop buying US goods and hit them where it would hurt the most. Soybeans would be their weapon of choice. China would also use this as a political weapon to sow discord in the United States knowing that it would hurt the states that voted for Trump in 2016 disproportionately to others. China had been quietly investing in South American ports in Brazil and Argentina before the 2016 election to diversify their soybean purchases. If they had port access in both hemispheres, they could access soybeans year-round. Other countries then ramped up their production of soybeans to sell to China in 2017 and the resulting surplus caused the markets to tank in the United States. China would then use this surplus as a way to buy cheap products.
“I don’t think we’re (the USA) being perceived anymore as a supplier that people really want to gravitate toward. The Chinese can buy from South America and they’re not going to have to put up with any tariffs or bullying tactics from Brazil. We’re still going to be a supplier, but it’ll probably be a residual or secondary, not a primary supplier like we were in 2016. If prices are cheap and they need the grain, they will buy. In effect, we told our customers to find other suppliers, and they’re doing exactly that, they’re investing in other parts of the world. China’s “takeaway” for the US and its trade war is to never allow themselves to become too dependent on any single supplier for food, grain and other agricultural products.”
-Jim Dotzenrod
The House of Cards Falls
In the world of commodities when one market fails, it causes a chain effect. Soybeans and corn are tied to each other because they rotate nicely and usually have good prices. The soybeans replace the nitrogen that is taken out of the soil by the corn and rotation prevents infestation of pests like nematodes. When soybean prices drop farmers can adjust and plant more corn and when corn prices drop, farmers can plant more soybeans. They can also store their grain and beans on their farm to wait out bad prices. But when soybean markets tank completely, corn is soon to follow and if storage bins fill up, tough choices have to be made. Farmers faced the tough decision to sell their crops for a loss or store their grain until the prices rebound. Crop insurance was not enough help because insurance pays what the price is for the end of the year, not the price at planting. Nor does it cover selling crops at a loss. The government had no choice but to step in at this point.
“The problem with the 2018 Farm Bill is that everybody gets the same deal, whether you’re the biggest farmer in North Dakota or a small farmer with only a hundred sixty acre farm, you get the same deal. Because of this the big farmers are assured unlimited crop insurance; they don’t have to buy what they need out of their own pocket. The Crop Insurance and Reinsurance Bureau of which Farm Bureau is a main player, has large lobbying groups in Washington to make sure this happens. They make this claim that without the big farmers and they wouldn’t be able to offer the premiums that they do because they need that land base within the risk pool. It wasn’t just the republicans, leaders from both parties shot this idea down.
-Todd Leake
“The government has come up with these tariff payments (MFP) plus our regular farm payments. It’s just enough to keep you going, but your overhead costs keep rising. The mindset in government that the farmers only allowed to make so much money is a problem. A lot of times the amount of money the government thinks we should get for our crops is less than our operating costs. When you base your bailouts on acres there are certain individuals or corporations that get millions because of their large acreages. These larger farmers already have more leeway when it comes to overhead costs because they sell more crops. You can’t fault them; they’re just playing the game.”
–Travis Anderson
The government, after seeing that grain prices weren’t coming back and the markets weren’t opening as planned, realized that the trade war’s impact was larger and more harmful than they expected. The benefits that had been promised were not materializing and there was growing doubt that the markets would return. The Administration began to panic because farmers that voted for Trump were hurting because of his decisions. Market Facilitation Payments (MFP) came from the Department of Agriculture and were passed shortly after. Farmers struggled to find bin space to store their grain in 2018 and as stockpiles continued to grow, and an election around the corner, the Trump Administration and Congress authorized a one-time payment of 12 billion dollars to farmers in 2018 to offset the loss of revenue due to the trade war. What these payments did for farmers was give them cash per acre to make up for what they should have made from selling their crops.
“The Market Facilitation Payments have been very helpful, but is this the business model you want to hand down to the next generation? Are we sitting here losing money growing crops and not having a market that’s strong enough to support the production of crops and just getting our money to live on from the government? Is this the future?”
–Jim Dotzenrod
Negotiations Continue
After the first round of MFPs, the Trump Administration kept running into roadblocks with negotiations. The USA continued to erratically threaten tariffs, lift them, and extend the deadline of when the tariffs would be implemented. China continued to agree to buy agricultural products if the tariffs were lifted and then would threaten to cut off all trade if the tariffs stayed or were extended. After nearly a year and a half of negotiations China announced retaliatory tariffs would be implemented. In June of 2019 at a meeting in Osaka Japan the two sides agreed to an unspecified deal but shortly after Trump once again announced 10% tariffs on 300 billion dollars worth of Chinese imports. On August 5th China completely halted buying agricultural products. The US once again pushed the deadline back to September and then December of 2019 and talks resumed. With all this happening it was clear that a second round of MFP spending at 16 billion dollars was needed and authorized.
You can see the entire trade war timeline here
“The (Trump) Administration messed with our trade deals and we’re the ones that suffered. The Administration (foolishly) tried to strong arm the Chinese and then the Chinese reaction blew it up. They should have had a plan in place before they did it. They had no idea what would happen. They just let the cows out of the barn and then wondered what we’re going to do afterward. Even if they were well meaning, the Administration has to pay for it if we’re going to keep going because we’re the ones suffering from the trade war.”
-Travis Anderson
MFPs: Easing Pain, But Not Enough
MFPs were never designed to be long term, they favor large farms, and inequitably handed out depending on what crops were grown and where the farmer lived. The average payment rate per acre to farms in Georgia and Texas, for instance, was more than four to five times higher than the average payment nationwide after the Agriculture Department loosened the formula to calculate losses, he found. Farmers in Georgia, the home state of Agriculture Secretary Sonny Perdue, were paid more in federal aid per acre than anywhere else in the nation, another found. Some farms collected millions of dollars in payments despite a limit of $250,000 per farmer due to being in a partnership or LLC.
“When you base your bailouts on acres there are certain individuals or corporations that get millions because of their large acreages. These larger farmers already have more leeway when it comes to overhead costs because they sell more crops. You can’t fault them; they’re just playing the game. But if the game favored little guys a bit more maybe they could stay on the farm a few more years, rather than going under. Once small farmers go under, they do not come back.”
-Travis Anderson
Acreage payments for 2018 and 2019 were calculated with a simple formula. Take the average 3-year yield of all eligible crops planted in the county times the 4 year average of the number of acres of those crops planted. Then divide the loss of income those crops lost during the year and that will result in the average loss per acre paid per county. In 2019 when the second round of MFPs were handed out one change was made. Instead of basing damages on 2017 losses the USDA calculated the damages on the 10-year average of prices. It created two problems, counties got disproportionately paid based on what they typically grew, and some farms have land in multiple counties resulting in uneven payments. The prices paid to farmers based on the 10-year markets just weren’t enough to pay the bills even though the 2019 MFPs covered more crops than the 2018 version.
“Let’s do hard numbers. Some of the counties I farm in in this last round of trade war payments received $20 per acre. Because of the trade war I lost $2 cash per bushel, and I grow 30 bushels per acre, so due to the trade I lost $60/acre. I got $20 dollars per acre from the federal government to help out with my losses, but where’s the remaining $40/acre? Even with the payments I am losing money. At $40/acre losses multiplied by 2,000 acres means I lost $80,000 this year and my overhead costs didn’t change.”
-Tyler Stafslien
As the trade war drug on, a second threat continued to linger. As the late 2010s farmers and ranchers deal with drought, floods, and blizzards.
We’ll continue with Part 3 of the Farmers and Ranchers in Crisis: Extreme Weather