FOCUS ON AG

Written by Kent Thiesse

Farm Management Analyst and Vice President, MinnStar Bank
November 18, 2019

USDA ANNOUNCES SECOND PORTION OF 2019 MFP PAYMENTS

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 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 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 November 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 December 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 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.

Negotiations between the U.S. and China to end the 18-month old trade war between the two countries
has 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.

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. 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.
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. The MFP county payment rates for all counties in the U.S. can be found at:
https://www.farmers.gov/sites/default/files/documents/PaymentRates.pdf.

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 that 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.

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Note --- For additional information contact Kent Thiesse, Farm Management Analyst and Senior
Vice President, MinnStar Bank, Lake Crystal, MN. (Phone --- (507) 381-7960);
E-mail --- kent.thiesse@minnstarbank.com) Web Site --- http://www.minnstarbank.com/