Why 2019 MFP payments will be a disappointment for some | Michigan Farm News

Why 2019 MFP payments will be a disappointment for some

Category: Crops

by David Widmar, Agricultural Economic Insights; Farm News Media

Nearly two months after USDA’s May 23 announcement of a 2019 MFP payment, farmers are still waiting to see the actual details of how the $14.5 billion budget will be disbursed, and what those payments will mean to farm income statements. (Photo: United Soybean Board)

The flow of meaningful information from USDA leadership about the 2019 Market Facilitation Program (MFP) payments has remained painfully slow. Yes, there was the big announcement, but there has been exactly zero information that producers can plug into their farm financial projections to help them plan for the rest of 2019.

In the absence of tangible information, this week’s post considers the big-picture impacts of how a 2019 MFP program might roll-out.

On the surface, the USDA’s announcement of $16 billion in 2019 trade aid funding sounds very large. In fact, it was sort of difficult for us to wrap our minds around how far that money might go. First off, however, it’s important to note that only $14.5 billion was earmarked for MFP, or direct payments to producers.

How large is $14.5 billion? Well, in 2018, there were about 294 million acres of corn, cotton, sorghum, soybeans, and wheat planted in the U.S. $14.5 billion across 294 million acres is about $49 per acre. That said, 2019 MFP payments will include more crops than those outlined above and will also make payment to dairy and hog producers too.

The point here is to size-up how big total MFP payments are. Yes, $14.5 billion is a lot of money. That said, there are a lot of slices to come out of the pie. The reality of the situation is that a $50 per acre payment across the five crops above would spend all that money, and more.

Estimating 2019 Payments

Before showing our estimated county-level crop payments, we must mention a few caveats. First, we haven’t gotten all the details from USDA, so we have had to make several assumptions. Because of that, what the USDA publishes as a final estimate will be different from our estimates. Additionally, our assumptions may prove to be inaccurate. So in other words, these are our estimates based on the limited information that we have today.

To derive Figure 1, we used a five-year average for corn, cotton, sorghum, soybean, and wheat acres and yields to establish a production base. From there, payment rates for the crops — corn, cotton, sorghum, soybeans, and wheat — were assumed.

For corn, soybeans, and wheat — the rates used were from this Bloomberg article. The mentioned payment rates were $2/bushels for soybeans, $0.63/bushels for wheat, and $0.04 for corn.

While the USDA has refuted the article, many elements of the article have held up and this metric hasn’t been specifically denied. For cotton and sorghum, which weren’t mentioned in the Bloomberg article, 2018 rates were used ($0.06/pound on cotton and $0.86/bushels on sorghum). If these payment rates change — i.e., corn receives a higher rate and soybeans lower then the county estimates will change.

Additionally, it is possible that USDA won’t even release a per commodity payment rate, but instead, just report county level payment rates. Our assumption is that something like the rates above will drive the determination of the county level payment rates, and this may not prove to be accurate.

Second, the purpose of Figure 1 is to illustrate the potential for wide payment variations, not to provide specific county-level estimates. Again, we don’t actually know what the USDA payment rates are going to be, so these estimates are just that. If the USDA would announce their metrics, we could take most of the guesswork out of the estimates, but so far, that is not the case.

Wide Variation

Based on our calculations and assumptions, the counties with the potential for the largest MFP crop payments in 2019 are in the Delta region. Keep in mind, soybeans are a large share of production (2018), along with the other high per-acre payment crop of cotton.

Outside of the Delta, the largest payment rates across the Midwest will be in the heart of the Corn Belt. In these areas, soybeans are driving most of the payment math while corn is pulling the weighted average lower.

Even within the I-States, county payment rates are likely to slip lower in the northern-tiered counties.

Outside of the Corn Belt, payment rates drop quickly. Consider how much variation states like Nebraska and Kansas have as you move west. This is a case where national- or even state-level- averages will be hard to interpret.

Figure 1: Estimated 2019 MFP County Crop Payment Rates. Crops included are corn, cotton, sorghum, soybeans, and wheat.
Click to enlarge...

While we wait for the USDA to announce the county-level MFP payment rates — which could come at any time — producers are left to guess what potential 2019 payments might be. We’ve heard many float the idea of a $50 per acre payments.

For a national average, MFP crop payments will come in well below this level. The math just doesn’t support such large payments given the size of 2019 MFP payment funds (the size of the pie) and the number of commodities that will have claims for payments (the number of slices). However, some counties will likely have much higher rates than the $50/acre, and some much lower.

Based on 2018 payment rates and what we know about 2019, soybeans will again drive a large share of 2019 payments. Counties and regions that have traditionally had a large share of their acres planted to soybeans will likely see larger payments. Conversely, counties and regions where soybeans are a minor crop will see significantly smaller payments. States like Kansas and Nebraska will likely see wide variations in payment rates as you move across the state.

Putting this all together, the biggest story about MFP 2019 might be the wide variation of county payments rates. While large payments — e.g., greater than $50 per acre — will likely be possible in some counties and regions, most producers will see significantly smaller payment rates.

Once the USDA releases these county-level rates, producers can begin to update their budgets. Of course, the next uncertainty will be around the second and third payments. Specifically, how and when will the USDA determine and announce if these payments will be made.