May 28, 2019

The Knowns and Unknowns: A Guide to MFP 2019

By David Widmar

by David Widmar and Brent Gloy

In late May the USDA announced preliminary plans for another round of trade mitigation aid for the farm economy. In many ways, this program is similar to the 2018 program, but is also different in key ways. This week we lay out what is known, and unknown, about the MFP 2019 program.

A few details

A majority of headlines have focused on the direct payments to farmers, but the USDA’s 2019 program has three assistance programs. In total, the 2019 program is authorized to provide up to $16 billion in programs.

The Market Facilitation Program – which are the direct payments to farmers – will account for $14.5 billion of the programs. A list of commodities covered, which has expanded since 2018, can be found here.

$1.4 billion has been slated for the Food Purchase and Distribution Program (FPDP). FFDP authorizes the USDA’s Ag Marketing Services (AMS) to “purchase surplus commodities affected by trade retaliation such as fruits, vegetables, some processed foods, beef, pork, lamb, poultry, and milk for distribution by the Food and Nutrition Service (FNS) to food banks, schools, and other outlets serving low-income individuals.”

Finally, $100 million has allocated for the Agricultural Trade Promotion Program (ATP). This program is designed to develop new export markets for ag products.

In total, the 2019 funding is an increase from the 2018 program’s authorization of $12 billion.

Known: Payments via County-level Rates

Perhaps the most significant change from 2018- where payments were based on units (bushels, head) produced- is the 2019 payment rate. For 2019, payment rates are set at the county level[1]. Each county will have a unique payment rate ($ per acre).

It is not exactly clear how these payment rates will be calculated, but the general framework has been laid out. First, the USDA will calculate the trade impact. This method will be similar to what was used in 2018 to determine, for example, the $1.65 per bushel impact for soybeans. Second, the USDA will use historical production information (county acres and yields) to calculate a weighted average across the county’s eligible MFP commodities.

If two farms in the same county both farm 1,000 total acres of corn and soybeans, their payment rate (and total payment) will be the same, regardless of how they split their 1,000 acres.

Why this payment method? The USDA has been cautious about minimizing the potential friction between MFP payments and WTO agreements. For the WTO, it is important to consider if the payments are decoupled from production.

Known: Three Rounds of Payments

After the USDA releases the county-level payment rates, there will be three rounds of payments. One-third of the county-level payment rate will be paid in late July or early August. Specifically, payments will be made shortly after FSA crop reporting is completed by July 15th.

The other two payments will be made, “if conditions warrant,” in November and early January 2020.

To clarify- only the first round, or one-third of the total, is guaranteed at this point.

(Mostly) Known: Planted Acres Key

A critical element of the 2019 program is a farm’s planted acres of covered crops. The USDA has been mostly clear that acres filed as prevented planting will not be eligible for MFP payment[2]. Given the historically slow planting pace and approaching final crop insurance dates, this has become a sore spot for many producers.

On the one hand, the USDA is saying weather delays and planting concerns are covered by the prevented planting provision authorized via the farm bill. Secretary Sonny Perdue said, “We have a safety net program for prevented plant, government insurance perspective, it’s pretty lucrative, honestly.” With that in mind, the USDA has decided to not, yet, release they county-level payment rates to avoid producers factoring MFP payments into their late planting decision.

On the other hand, one could easily argue that prevented planting coverage levels were set by commodity prices impacted by the ongoing Trade War. Second, the USDA has already let the MFP cat out of the bag. Producers will have expected MFP payments in the back of their minds as they approach the final planting dates for crop insurance. And specifically, the expectation they have to plant the crop to get a payment. While producers do not know their county-level payment rate, the expectation of a payment is still there. This “plant for payment” situation is why the USDA’s argument that 2019 MPF payments are decoupled from production is hard to swallow.

Known: What If I Farm More Acres in 2019?

In an interview, Secretary Perdue said that a farmer who farms more acres – say from buying or renting more farmland acres in 2019 – will be eligible to receive MFP payments on those acres (compared to 2018) (interview here, start at 6:30). The 2019 program, however, will limit acres where hay or pasture production is put into, say, soybean production.

Unknown: County-Level Payment rates

County-level payment rates are the biggest unknown. It’s not even clear when these values will be released. Again, the USDA is claiming they do not want to release these numbers and impact planting decisions.[3]

Unknown: What does it take for the 2nd and 3rd payments to get approved?

Like in 2018, the USDA has not laid out a clear litmus test for how authorization on the 2nd and 3rd round of MFP payments will be determined. This makes budgeting and planning nearly impossible for producers.

Wrapping it Up

At this point, the USDA has laid out a general framework for 2019 MFP payments. That said, one could argue that the latest announcement created more questions than answers.

At this point, producers have no idea how the program will impact their farm’s financial standing. Furthermore, producers face uncertainty about the 2nd and 3rd rounds of payments. As we’ve pointed out before, the administration’s approach of being quick to promise aid but slow to release meaningful details can be frustrating for producers trying to make financial plans, especially given the challenging farm economy.

That said, the MFP program outlined is, at least in our opinions, a significant improvement over the initial rumors and tweets that the US government might buy commodities as a form of international food aid.

MFP payments in 2019 will be a welcome help to the farm economy. That said, small administrative changes could make the MFP program and funds much more helpful for producers as they make financial plans. Finally, MFP payments are a band-aid and, alone, are not sufficient enough to pull the farm economy out of the ditch.

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[1] One caveat: dairy, hog, tree nut, fresh sweet cherry, cranberry, and fresh grape producers will still have a 2019 MFP payment based on 2019 production levels.

[2]If you really want to read into details, listen to Secretary Perdue’s interview on AgriTalk starting at minute 8:30. His reply- which included “probably” – was more ambiguous than previous USDA statements.

[3] There are probably a few great research projects in here. 1) What do producers think their county-level payment rates will be? 2) Is the expectation of a payment enough to impact planting decisions?