Minding Ag's Business

MFP Payments Buoy Farm Income, Complicate Planting Decisions

Katie Micik Dehlinger
By  Katie Micik Dehlinger , Farm Business Editor
Payments designed to offset the impact of the trade war with China made up 37% of the average Kansas farmer's income in 2018, but questions about the parameters of 2019's program complicate decision making amid this year's wet planting season. (DTN File Photo)

Farm incomes may be up in Kansas, but more than half of it came from Uncle Sam in 2018.

The Kansas Farm Management Association said average net farm income climbed to $100,000 last year, marking the third consecutive year of gains. Yet 55% came from a combination of traditional farm program payments like ARC and PLC, livestock payments, conservation programs and the Market Facilitation Program, which was intended to help producers cope with lower commodity prices due to the trade war with China.

The one-time MFP payments made up a full 37% of the average farm income, and as the conflict with China seems to escalate, producers are left to wonder what will happen in 2019.

"We have entered 2019 with continued expectations for market prices at levels that are below cost of production unless above average farm yields are achieved," KFMA executive director Kevin Herbel said in a report accompanying the annual KFMA data. "As such, the comfort level for many producers is not very high. It is important for farm managers to assess their financial position and make adjustments as needed." (https://www.agmanager.info/…)

And it's not just Kansas: Without MFP payments, the national net farm income would have fallen to levels not seen since the 1980s. USDA estimates 2018 farm income at $64.2 billion, with MFP payments accounting for $5.2 billion of that income. The remaining $3.5 billion was distributed in 2019.

Since 1990, net farm income has only dropped below $70 billion half a dozen times, including three of the past four years (2016, 2018, 2019). For comparison, incomes in the 1980s fell below $50 billion in today's dollars. (https://ageconomists.com/…)

Payments for last growing season will help prop up USDA's official measures of income in 2019, and Agriculture Secretary Sonny Perdue said a second trade assistance package for farmers is in the works, but this time outlays could total $15 to $20 billion. And in a recent phone call with reporters, he said the program's details could vary from last year. (https://www.dtnpf.com/…)

Last year, MFP paid based on harvested bushels: $1.65 per bushel for soybeans, 14 cents per bushel for wheat and 1 cent per bushel for corn. Those low figures have corn and wheat farmers trying to get a better deal. (https://www.dtnpf.com/…)

While the details remain unknown, many economists say direct payments like the MFP program is the most likely way the program will work, partially for the sake of execution and effectiveness and partially to avoid WTO entanglements. It's whether or not the agency changes its formula that is raising so many questions.

Will it still be based on harvested bushels? That became a problem in the Delta last year. Due to a combination of rain and slow export sales out of the Port of New Orleans, elevators stopped accepting soybeans for delivery that had more than 5% damage. Farmers, who lack soybean storage facilities, had nowhere to take their beans, and many acres rotted in the field as a result. Since they were unharvested, farmers didn't receive MFP payments.

If this year's program is also based on harvested bushels, that's something farmers facing corn's prevent plant deadline would like to know. A wet and cool spring has kept farmers from across the Western Corn Belt and Plains from planting corn, and they're weighing whether it's worth it to switch to soybeans.

Its likely soybeans will receive the largest payment if the government's 2019 program resembles last year's, and if it's based on bushels, extra production could come in handy. While those bushels might yield farmers a check from Uncle Sam that would help prop up their income, it would also add bushels to already burdensome stockpiles, creating further problems for prices.

Without any MFP-like payments, taking the prevented planting payment has the highest expected return relative to switching to soybeans or continuing to plant corn, according to the folks over at the FarmDoc Daily blog. (https://farmdocdaily.illinois.edu/…)

It raises an old question: are farmers going to plant for the market, or for the government program? Congress has tried to let the market dictate planting decisions through the most recent farm bills, but this trade war -- and plans to minimize the damage to farmers -- is firmly in the hands of the executive branch.

In a recent blog, Purdue University ag economists David Widmar and Brent Gloy argue the administration should come up with a strategic plan that includes long-term, multiple year payment mechanisms to avoid the uncertainty inherent with a string of one-off programs.

"The farm economy was already on its knees dealing with low commodity prices, tumbling incomes, and high ending stocks. The Trade War making matters much worse. Regardless of all the uncertainty caused by the situation and its handling, many in agriculture will likely have hard financial decisions to make in the coming months. One could hope that they have better information with which to make those decisions.

"U.S. farmers and ranchers deserve better." (https://ageconomists.com/…)

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