September 3, 2018
FINANCIAL IMPACT OF MFP PAYMENTS TO FARMERS
On August 27, USDA announced the details for a $12 billion “Trade Retaliation Mitigation” (farm tariff) aid package for 2018 to help offset the financial impacts on farmers that have been created by the ongoing trade disputes with China, Mexico, Canada and other countries. The aid package includes direct payments to producers of affected farm commodities, purchases of surplus commodities, and trade promotion programs. The biggest immediate impact to farmers will be the direct aid payments under the “Market Facilitation Program” (MFP) for soybeans, corn, sorghum, wheat, cotton, hogs, and dairy.
The MFP sign-up period begins on September 4, 2018 and continue through January 15, 2019. MFP applications can either be made at local FSA offices or be submitted electronically to FSA offices via scanning, e-mail, or fax. Crop producers can make application for MFP program once they have completed their 2018 harvest and can verify their bushels of production. Acceptable crop production verification will be similar to other required yield verification through FSA or federal crop insurance. The crop MFP payment rates are: $1.65/Bu. for soybeans, $.01/Bu. for corn, $.14/Bu. for wheat, $.86/Bu. for sorghum, and $.06/lb. for cotton.
Payments for dairy producers will be based off the historical milk production levels that have been reported to FSA offices under the Margin Protection Program (MPP) for dairy producers. Payments to hog producers will be on a per head basis, based on the number of hogs owned on August 1, 2018. Production records for hogs will include breeding records, inventory record, sales receipts, rendering receipts, and veterinary records. The livestock MFP payment rates are $8.00/head for hogs and $.12/cwt. for dairy (milk).
The first MFP payment will be 50 percent of the calculated payment, will be made to producers after September 4, once the production information has been verified by FSA. USDA will determine after December 1 if there will be a second payment and what the payment level will be, which again would be paid on the remaining 50 percent of the 2018 production levels (as calculated earlier). Local FSA offices will be providing more details on the MFP sign-up process, production verification, and other information very soon. There is more information, a MFP fact sheet, and other very useful application tips available for the MFP program available on a special USDA web site at: www.farmers.gov/MFP.
Sonny Perdue, USDA Secretary of Agriculture, indicated that the MFP aid payments are intended to help farmers with the unintended lost farm income that has resulted from the ongoing trade disputes with other countries; however, he also stated that the MFP program “will not make farmers financially whole again”. Many farm operators were either just barely at a breakeven margin level, or were scheduled to show a loss, from crop and livestock production at the projected market prices at the beginning of 2018. The decline in market prices due to the ongoing trade war, together with crop weather problems in some areas, has accentuated the anticipated negative profit margins for 2018.
The attached “2018 Crop Revenue Estimate Table” shows the estimated total crop revenue for corn and soybeans at an average yield (APH yield) for 2018, a high yield (20% above APH) and a low yield (20% below APH). The Table includes a MFP payment levels of $1.65/Bu. for soybeans and $.01/Bu. for corn, based on the actual bushels produced. The table also assumes 80% RP crop insurance coverage, with estimated harvest prices of $3.60/Bu. for corn and $8.40/Bu. for soybeans. The Table also shows the estimated profit or (net loss) per acre, based on average production costs for direct expenses, land rent and overhead costs of $675 per acre for corn and $475 per acre for soybeans, which includes $225 per acre for land rent. Obviously exact levels of production and land costs, crop insurance coverage, and final crop market price will vary from farm-to-farm.
As is shown in the Table, a farm operator with an average corn and soybean yield (APH yield) in 2018 will likely show a loss on cash rented acres, unless they have marketed their crop at a higher price, or they have lower operating and land costs. The 2018 financial losses per acre can become quite significant for crop producers that have experienced weather issues in 2018, which could result in lower than average yields. Those farmers that are fortunate to have very high yields in 2018 will likely be able to at least breakeven or show a small profit from their 2018 corn and soybean production, especially with the added MFP payments for soybeans.
The MFP payments to farm operators that have been announced by USDA will certainly help ease the financial hardship being experienced by farm operators in 2018, as a result of the ongoing trade war and tariffs, especially for soybean and hog producers. However, the MFP payments will not make up for the income loss that some farmers are likely to experience in 2018, especially in areas with weather issues. An even bigger concern might be what happens in 2019, if there is no resolution to these trade disputes and commodity prices remain quite low. This could create very serious financial challenges for some farmers heading into next year.
The agricultural trade agreements that currently exist took decades to become a reality. Farm organizations and ag commodity groups have dedicated millions of dollars of financial and personal resources into developing the strong agricultural export markets that the U.S. has had with China, Canada, Mexico, and other countries. Most farm operators and others in the ag industry appreciate the aid package being offered by USDA, but favor maintaining and enhancing strong trade relations with our current trading partners, as well as seeking new trade partners, as a long-term solution for ag trade.
Note — For additional information contact Kent Thiesse, Farm Management Analyst and Senior
Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960);
E-mail — email@example.com)