USDA has announced that the second portion of the direct aid payments under the 2019 Market Facilitation Program (MFP2) will be made in late November or early December. The MFP payments provide financial support for producers of a wide range of crops, including corn, soybeans, and wheat, as well as for hog, and dairy producers. The MFP2 payments are part of a $16 billion trade assistance (farm tariff) aid package for 2019 that was announced earlier this year.
The 2019 trade aid package included up to $14.5 billion for MFP2 payments to producers of affected commodities. The first half of the total 2019 MFP payment (50 percent or .50) has already been made to eligible producers that have enrolled in the MFP2 program. As of Nov. 12, USDA had paid out approximately $6.8 billion in 2019 MFP2 payments to eligible producers. The second portion of the 2019 MFP2 payment (25 percent or .25 of the total MFP payment) is being made in late November or early December. The third and final portion of the 2019 MFP2 payment (25 percent or .25 of the total MFP payment), which has not been confirmed, would be made in January 2020.
The 2019 MFP sign-up period will continue through Dec. 6, 2019. Eligible producers are encouraged to sign-up by the deadline, as USDA does not plan to extend the date. The easiest and preferred method to apply for the MFP program payments is to complete the MFP application form, which is available on a USDA website. The web site also contains the MFP fact sheet and other useful information on the MFP program. MFP applications can also be made local FSA offices, either in-person, by mail, or electronically via e-mail, scan or fax.
Negotiations between the U.S. and China to end the 18-month old trade war between the two countries have shown some positive signs in recent weeks; however, no final agreement has been reached. China has announced some purchases of soybeans, pork and other ag commodities from the U.S. in the past couple of months, but the purchase levels are far below the pre-trade war export levels of U.S. ag products to China. Even if a new trade agreement is reached with China, it may take months or even years for U.S. ag trade with China to return to pre-trade war levels. Some experts feel that U.S. ag exports to China may never return to pre-trade war levels.
The new United States-Mexico-Canada trade agreement (USMCA) was initiated in late 2018 to replace the North American Free Trade Agreement (NAFTA), which has been in place since 1997. The USMCA agreement was signed by the leaders of the three countries; however, it still needs to be approved within the various countries, including by the U.S. Congress, before being implemented. Thus far, the U.S. Congress has taken no action regarding the approval of the USMCA agreement.
Impact on commodity prices
The Chicago Board of Trade (CBOT) November soybean futures price dropped nearly $2 per bushel after the trade war began mid-year in 2018. There were also declines in corn and wheat prices during the second half of 2018. Crop prices have only rebounded slightly since then, with most of the price improvement being due to lower than expected crop yields in 2019. Local cash grain prices in Western Minnesota and the Dakota’s dropped at even higher levels, as local basis levels below the CBOT price widened out due to limited market access to west coast markets that export to China. The market price for U.S. hogs also declined significantly in 2018, with only modest recovery in 2019.
MFP payment stipulations
The 2019 MFP payments to crop producers are being made on a single per acre payment rate for all eligible crops. The payments were calculated based on the historical crop mix and production level in a county, as well as the likely negative financial impact that resulted from the added tariffs and negative trade situation. Producers with prevented planted crop acres in 2019 are eligible to receive a 2019 MFP payment of $15 per acre, provided that an eligible cover crop was seeded on those acres by August 1, 2019. Prevent plant acres that were not planted to a cover crop in 2019 are not eligible for MFP payments. MFP2 county payment rates average about $55 per acre in Minnesota, $66 per acre in Iowa, and $69 per acre in Illinois. See the MFP county payment rates for all counties in the U.S.
Eligible hog producers qualified for a 2019 MFP payment of $11 per hog owned on a specified date between April 1 to May 15, 2019 (producers selected the date). Dairy producers who were in business on June 1, 2019 are also be eligible to earn a 2019 MFP payment of $.20 per hundredweight (cwt.), based on their production history. Similar to the 2019 MFP payments to crop producers, the payments to hog and dairy producers have been divided into three rounds of payments.
There is a payment limit of $250,000 per person or legal entity for the 2019 crop MFP2 payments, and a separate $250,000 payment limits for combined hog and dairy payments. No individual or entity can receive more than $500,000 in total MFP2 payments. In addition, producers must have an average adjusted gross income (AGI) of less than $900,000 for the 2014, 2015 and 2016 tax years to be eligible for MFP2 payments, unless more than 75 percent of the AGI was derived from farming and ranching.
Recently the MFP payments have come under criticism from some members of Congress, as well as by some ag policy groups. The criticism has been that some counties in the Southern States have received unusually large MFP2 payment rates (exceeding $100 per acre), mostly in major cotton producing areas of the U.S. Most counties in Southern Minnesota and Northern Iowa had a 2019 MFP payment rate of $60 to $75 per acre. There has also been criticism of the MFP payments in 2018 and 2019 going to very large farms and ag companies. USDA countered with data showing that 60 percent of the MFP2 payments distributed thus far have went to the Midwestern States of Iowa, Illinois, Minnesota, Nebraska, and Kansas. USDA also pointed out the payment limits that are in place to limit payments to very large producers.
Regardless of the controversy over MFP payments in Washington, DC, most crop, hog, and dairy producers of all sizes, as well as their ag lenders, are pleased that the MFP2 payments will be part of their 2019 year-end farm income. Even with the full MFP payments, some farm operations in the Upper Midwest will likely still show a “net loss” for 2019, as a result of the reduced crop yields due to the weather problems this year. The added income from the MFP2 payments may prevent some producers from showing a “net operating loss” in 2019, or least the MFP payments should help limit the operating losses. The MFP payments in 2018 and 2019 have probably had more positive short-term financial impact for many farm operators than farm program payments under either the current or last Farm Bill.