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Serving: IA
grain bins with tractor in front.
SCHEDULE: USDA’s 2019 “trade aid” payments are expected to be made in three parts, with the first and largest payment expected in mid- to late August.

MFP payments help, but crop marketing still critical

Even with the Market Facilitation Program, financial success depends on your marketing strategies.

Farmers are headed to their local Farm Service Agency in August to sign up for the new Market Facilitation Program. Those payments will be made on 2019 planted corn and soybean acres on a farm, not to exceed 2018 plantings. Payments will vary by county, with a statewide range in Iowa between $40 and $79 per acre, and an average of $66 per acre. 

The first payment will be comprised of 50% of a farm’s payment rate. Total MFP payments will potentially be made in three portions, depending on the status of Chinese tariffs placed on U.S. agricultural products. If conditions warrant, the second and third payments of 25% each are planned for November and January, respectively.

These MFP payments will be welcome by most farmers. However, even if all three payments are eventually made, they reflect less than 15% of that farm’s likely 2019 total crop revenue. These new MFP payments should be figured on a per bushel basis by each farmer and added to the farm’s final cash prices received, to see how they will affect the farm’s income.

For example, consider the statewide average payment of $66 per acre. A full payment would reflect roughly 36 cents per bushel on a 180-bushel-per-acre final corn yield. For soybeans, the total MFP payment would reflect about $1.32 per bushel on a 50-bushel-per-acre final yield.

Meeting cash flow needs

The late-summer and fall months are a critical time for most farms to generate their necessary cash flow needs. Additional costs ahead could include drying wet corn, fall tillage and the purchase of fall fertilizer with corn-planted acreage expected to increase in 2020. The rally in both corn and soybean futures the first half of June gave producers a shot at finishing old-crop sales and getting additional new-crop bushels priced.

Without major corn or soybean futures price rallies prior to harvest, additional crop sales might be required. Producers with cash flow concerns should strive to maximize their on-farm storage capacity in advance of harvest. At the same time, limit the number of bushels placed unpriced in commercial storage.

Expect higher usage of the FSA Marketing Assistance Loan (MAL) program this fall and early winter with the soon-to-be announced higher county loan rates. While utilizing the MAL program might provide for a cheaper interest rate, this is not much of a marketing plan. Your crops will need to be harvested and grain bins measured along with settlement sheets provided to FSA prior to receiving loan proceeds. Consider making cash sales or developing minimum price strategies, rather than just storing unpriced bushels when your cash flow is tight.

Consider crop insurance revenue

Crop insurance may be another source of crop revenue with the potential for crop insurance indemnity payments. Claims could be larger this fall with not only the uncertainty of final crop yields, but harvest prices determined in the month of October.

Most all farmers are using crop revenue protection that guarantees the farm’s actual production history (APH) and the higher of the spring projected price or harvest price. Those spring-projected prices were $4 per bushel for corn and $9.53 per bushel for soybeans, respectively. Most farms insure their farm’s revenue at the 80% to 85% coverage level. Lower final yields at harvest along with lower harvest prices could trigger crop insurance indemnity payments.

Marketing the 2019 crop and the final cash prices received will be the final step to determine whether row crop farming was profitable this year. Farmers should have started the spring by developing a crop marketing plan, preferably in writing. It should have contained both reasonable futures and cash price objectives. 

Farmers could then preharvest market a portion of their new-crop corn bushels during the growing season when futures prices were above the projected spring price. Those farmers could then deliver these priced bushels at or shortly after harvest and avoid additional storage costs and interest charges while generating necessary cash flow needs.

Marketing tools, managing price risk

‪Farmers are encouraged to use a variety of marketing tools to spread their price risk and attempt to time their sales when futures prices are high. The most critical time is usually the spring months. Then lock in harvest delivery basis early or deliver the corn shortly after harvest when basis strengthens. Corn futures will likely lack the carry, and we can expect some of the most attractive harvest basis bids in the past four years.

Preharvest marketing of soybeans at attractive futures prices has been more challenging. Consider focusing on the January 2020 soybean futures contract that could allow more time for a futures price rally impacted by both the uncertainty of U.S. production, as well as South American planting conditions.

On-farm storage typically used for corn might have to be used for unpriced soybeans. A large carry exists in soybean futures, along with extremely wide basis. Don’t forget to combine your new MFP payments to your final cash prices received for your 2019 crops.

For more information and tools on marketing grain, check out ISU’s Ag Decision Maker.

 Johnson is an Iowa State University Extension and Outreach farm management specialist. He can be reached at sdjohns@iastate.edu.

 

 

 

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