Farm Bill, China and Latest With The MFP Payment
Update for December 21st, 2018
Farm Bill 2018 has been signed into law and in general it continues the farm programs of the 2014 Farm Bill with a few changes. The Agriculture Risk Coverage (ARC) and the Price Loss Coverage (PLC) programs will remain in the new Farm Bill. One important change regarding these programs is that unlike the 2014 version which allowed the choice of only one of the programs for the full 5 years the 2018 Farm Bill allows producers to elect a program for the 2019 and 2020 crop years and beginning for the 2021 crop year farmers can change the ARC/PLC election each year. If no election is made the auto default option assigned will be PLC.
There has been some talk that China is looking to import 3 million metric tons of corn as well as U.S. ethanol, DDG’s and sorghum. The last time that China purchased any significant amount of corn, around 3 MMT’s was in 2013 which has many traders questioning the validity of these stories. At the G20 Summit meeting last month the Chinese had hinted at buying up to 20 million metric tons which if occurs could be a one-time purchase to replenish their reserves. A 10 million metric ton sale could offset the expected 2.3 million acres increase in 2019 corn acres at trend-line yields. Corn prices have remained relatively steady due to strong demand we had been seeing but bottom-line, growth in demand is being heavily questioned right now. Crude oil prices have fallen nearly 12% in just the past 3 sessions and there are more headlines daily of U.S. ethanol plants idling or closing some of their facilities. All companies large or small are vulnerable to the poor state of ethanol profit margins and although most companies will not make it public many are cutting back on production levels behind the scenes.
Last week’s announcement from China to purchase 1.13 million metric tons of soybeans was the 9th largest purchase in history, while this is certainly a move in the right direction this 41 million bushel purchase doesn’t make much of a dent in the current U.S. carryout of 955 million bushels. Wednesday morning the USDA announced a 1.199 million metric ton sale of soybeans to China. Traders are hoping to see additional sales of 3-4 million metric tons of exports in the near future to help support prices at their current levels and analyst feel it will take between 8 MMT’s to 11 MMT’s of Chinese purchases to move U.S. balance sheets into a more bullish position. There are concerns that the Chinese are keeping the trade doors open with the U.S. just in case issues arise with soybean quality or trucking/shipping logistics out of South America. There is some early South American yield information that is beginning to indicate lower than expected yield results with early harvested crops. At this point there are a limited number of acres being harvested so it will be some time before we know how widespread and severe the yield reductions are. Weather conditions across Brazil have become very hot and dry with little precipitation in the forecast, this is poor timing for the current crop stage.
The payment of the second half of the MFP has been confirmed and will be paid out on 100% of eligible bushels. The chart below shows each commodity eligible for the program, the combined total of the first and second payments and then the estimated amount that will be paid out nationally. MFP payments are limited to a combined $125,000 per person or legal entity for corn, cotton, sorghum, soybeans and wheat. The combined $125,000 limit also applies to hog and dairy producers and a combined $125,000 for fresh sweet cherries and almond producers. In addition applicants must also have an average adjusted gross income of less than $900,000 for the tax years of 2014, 2015 and 2016 and comply with the rules of the Highly Erodible Land and Wetland Conservation regulations.
** Remember that you only have until January 15th, 2019 to enroll in the program. If you have enrolled for the first payment you do not need to sign up again, you are automatically enrolled for the 2nd payment.
Market Facilitation Program
Commodity First and Second Est. Total Payment**
Payment Rate (in $1,000s)
Almonds (shelled) $0.03 / lb. $63,300
Cotton $0.06 / lb. $553,800
Corn $0.01 / bu. $192,000
Dairy (milk) $0.12 / cwt. $254,800
Pork (hogs) $8.00 / head $580,600
Soybeans $1.65 / bu. $7,259,400
Sorghum $0.86 / bu. $313,600
Sweet Cherries (fresh) $0.16 / lb. $111,500
Wheat $0.14 / bu. $238,400
**Total payment rate on 100% of production
The other factor that may affect MFP payments is the possible partial government shutdown that will begin midnight Friday if Congress and the President fail to pass a funding bill. The funding bill covers nine Cabinet departments which includes the USDA. If no agreement is reached before the midnight deadline, thousands of federal workers will be furloughed which may include Farm Service Agency employees that have to process the MFP payments. According to USDA Under Secretary Bill Northey, payments will take a week or two to process and initial payments could be expected before the end of the year, but only if there is not a government shutdown.
A major winter snowstorm & potential blizzard is now forecasted for the Upper Midwest by both the GFS and EURO weather models for December 26th and 27th. Snowfall of 1-2 feet is expected across the heaviest portion of the storm track. This system is still several days away and while the current models expect the system to follow the path shown on the map it is very possible that the heaviest band of snowfall could shift either further north or further to the south by the time the system arrives.
Signs are pointing to a colder and snowier January and February here in the U.S. following a relatively mild December. Medium and long-range forecasts indicate that the Polar Vortex has weakened for the 2nd half of December which could lead to a blocked-up jet stream pattern by January. When this happens Europe and the U.S. typically receive persistently cold temps that can remain in place for an extended period of time.
The Staff at Ag Performance would like to wish
Each of you
A Very Merry Christmas!