Rails 4 mysql2 error when deploying to production - mysql

Question

I've got an Ubuntu virtual server (Digital Ocean Droplet) set up with Capistrano 3. I've successfully gotten all of the directories set up and the project directory has the current folder in it, containing config/database.yml file. I can't get it deployed to where it will run. It gets stuck on the rake db:migrate phase. rake assets:precompile successfully works, so I think it must be something with my database.yml file. The "production" block looks like this:
config/database.yml (production part)
production:
adapter: mysql2
encoding: utf8
database: capstone_production
username: <%= ENV['DATABASE_USERNAME'] %>
password: <%= ENV['DATABASE_PASSWORD'] %>
host: localhost
port: /var/run/mysqld/mysqld.sock
I have checked that the file is valid YAML with YAMLLint utility. Also, the environment variables echo properly with (root) credentials that I am able to use for mysql login. When I run cap production deploy:check, everything is good. However, running cap production deploy does everything okay until it gets to the rake db:migrate Capistrano process. Then it aborts and throws up this:
The deploy has failed with an error: #<SSHKit::Runner::ExecuteError: Exception while executing on host 107.170.105.223: Exception while executing on host 107.170.105.223: rake exit status: 1
rake stdout: rake aborted!
Mysql2::Error: Access denied for user 'root'#'localhost' (using password: NO)
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/gems/mysql2-0.3.20/lib/mysql2/client.rb:70:in `connect'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/gems/mysql2-0.3.20/lib/mysql2/client.rb:70:in `initialize'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/mysql2_adapter.rb:18:in `new'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/mysql2_adapter.rb:18:in `mysql2_connection'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/abstract/connection_pool.rb:435:in `new_connection'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/abstract/connection_pool.rb:445:in `checkout_new_connection'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/abstract/connection_pool.rb:416:in `acquire_connection'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/abstract/connection_pool.rb:351:in `block in checkout'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/abstract/connection_pool.rb:350:in `checkout'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/abstract/connection_pool.rb:265:in `block in connection'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/abstract/connection_pool.rb:264:in `connection'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_adapters/abstract/connection_pool.rb:541:in `retrieve_connection'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_handling.rb:113:in `retrieve_connection'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/connection_handling.rb:87:in `connection'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/migration.rb:916:in `initialize'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/migration.rb:814:in `new'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/migration.rb:814:in `up'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/migration.rb:792:in `migrate'
/home/deploy/apps/capstone_project/shared/bundle/ruby/2.1.0/bundler/gems/rails-331210df7c8a/activerecord/lib/active_record/railties/databases.rake:34:in `block (2 levels) in <top (required)>'
Tasks: TOP => db:migrate
(See full trace by running task with --trace)
rake stderr: Nothing written
I've tried many combinations of YAML syntax and restarted mysql server, puma server, and NGINX server over and over again. This is crazy, please help.
UPDATE
The problem seems to stem from this:
Mysql2::Error: Access denied for user 'root'#'localhost' (using password: NO)
From what I've read in MySQL docs, this error is thrown when you try to login without password. So I've got all the right credentials - I can even hard code the actual username and password into the YAML file and same error. For some reason when Capistrano executes the following command (via cap production deploy or cap production deploy:migrate), it's not including the password from database.yml:
INFO [85893e95] Running ~/.rvm/bin/rvm default do bundle exec rake db:migrate on 107.170.105.223
DEBUG [85893e95] Command: cd /home/deploy/apps/capstone_project/releases/20160205235633 && ( export RAILS_ENV="production" ; ~/.rvm/bin/rvm default do bundle exec rake db:migrate )
How to ensure that Capistrano executes the migration just like I would locally in development?
Thank you