President Trump announces approval of MFP payments

On December 17th, President Trump announced that the final half of the direct aid payments under the “Market Facilitation Program” (MFP) will be made as scheduled. The MFP payments include aid support for soybeans, corn, sorghum, wheat, cotton, hogs, and dairy. USDA originally announced the details for a $12 billion “Trade Retaliation Mitigation” (farm tariff) aid package for 2018 in August of this year. The aid program is intended 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 original announcement included an initial payment of 50 percent (.50) of the calculated total MFP payment for various commodities, with the potential for the 2nd half of the calculated MFP payment to be made after December 1. Those payments are now official and will occur.

The MFP sign-up period began on September 4, 2018 and continues through January 15, 2019. Eligible producers are encouraged to sign-up by the January 15th 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 (CCC-910), which is available on a USDA web site at: www.farmers.gov/MFP. 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. The first MFP payment of 50 percent of the calculated total payment will made to producers once the application has been verified by FSA, and now a second MFP payment of 50 percent will also be made.

Part of the logic for making the second half of the MFP payments is that China only recently announced the first U.S. soybean purchases since the trade war began back in June. It may take months or even years for U.S. ag trade with China to return to pre-trade war levels, if the U.S. ag exports return to that level at all. The MFP payments were originally announced to compensate for farm income lost due to the trade war on 2018 crop and livestock production, as well as the 2017 crop that was in storage. In addition, there has been no mention of China removing the 25 percent (25%) tariff on U.S. soybeans and other ag products that was initiated by the trade war back in June.

The new United States-Mexico-Canada trade agreement (USMCA) that has been initiated to replace the North American Free Trade Agreement (NAFTA), which has been in place since 1997, was announced earlier this Fall. The USMCA agreement was signed a few weeks ago by the leaders of the three countries; however, it still needs to be approved within the various countries, including the U.S. Congress, before being implemented. In the meantime, the tariffs that Mexico and Canada placed on U.S. ag products being imported into the two countries have remained in place.

The Chicago Board of Trade (CBOT) November soybean futures price dropped nearly $2.00 per bushel after the trade war began mid-year in 2018, and prices have only rebounded slightly in recent weeks. Local cash soybean prices in Western Minnesota and the Dakota’s dropped even more, as local basis levels below the CBOT price widened out. This localized price decline was due to limited market access in those areas, as most of the soybeans are shipped to west coast for export to China. Similarly, hog prices bottomed out late in the 2nd quarter and early in the third quarter of 2018, before rebounding slightly. Hog prices normally reach their low point in the 4th quarter. Many hog and dairy producers, along with numerous crop producers in the Upper Midwest, will have negative profit margins for 2018.

Most soybean, hog, and dairy producers, as well as their ag lenders, are pleased that the second half of the MFP payments will be part of their 2018 year-end farm income. Even with the full MFP payments, some farm operations will likely still show a “net loss” for 2018, with farm losses the greatest in areas that had reduced crop yields this year due to weather problems. For a Southern Minnesota farm operator with 1,000 acres of soybeans the 2nd half MFP payment would likely total $40,000 or more. If the farmer also had 10,000 head of finishing hogs on hand on August 1, the 2nd half MFP payment would be another $40,000 for the hogs. This added income from the MFP payments may prevent some producers from showing a “net operating loss” in 2018, or least the payments could help limit the operating losses.

The decision by the Trump administration to issue the 2nd half of the MFP payments will probably have more short-term financial impact for many farm operators than the recently passed 2018 Farm Bill. The Farm Bill will likely provide some long-term financial stability in the agricultural sector; however, the Farm Bill will not address the current financial difficulties that have resulted from the ongoing trade disputes. USDA has indicated that it will not be recommending any further MFP payments for 2019, feeling that crop and livestock producers should be able to adjust to the changes in market prices for the 2019 year.

New Farm Bill passed by Congress 

The U.S. House and Senate recently passed the new Farm Bill, titled the “Agriculture Improvement Act of 2018”. The Farm Bill will include provisions for the twelve Titles that are included in the legislation. The new Farm Bill will govern USDA programs from 2019 to 2023 and will be very similar to the current legislation, outside of a few tweaks to the commodity and conservation titles. The commodity provisions of the new Farm Bill will be implemented for the 2019 crop production year. As of this writing, the new Farm Bill has passed both Houses of Congress; however, it has not been signed into law by President Trump. All indications are that this will occur before the end of 2018.

Once the new Farm Bill is signed by President Trump, it will likely take a few weeks before USDA initiates implementation of the legislation and releases farm program details to local FSA offices and producers. Kent Thiesse has prepared an information sheet on some of the provisions in the Commodity and Conservation Titles of the new Farm Bill. To receive a copy of this information sheet, e-mail me using the link below. 

For additional information email Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal.  
 
To subscribe to BankWise for weekly Ag Lending News updates email Kristi Ploeger or call 651-789-3997.

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