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Prevented planting, 2019 Market Facilitation Program payments, disaster assistance, and price dynamics

By Gary Schnitkey, Krista Swanson, Ryan Batts and Jonathan Coppess with the University of Illinois Department of Agricultural and Consumer Economics University of Illinois and Carl Zulauf, with the Ohio State University Department of Agricultural, Environmental and Development Economics

We stand at a point of extreme price and policy uncertainty. In the Midwest, corn planting is historically late and many acres are or soon will be eligible for prevented planting payments on corn crop insurance policies. On many farms, corn prices have not increased enough to cause net returns from planting corn to exceed net returns from prevented planting. However, the U.S. Department of Agriculture announced a 2019 Market Facilitation Program (MFP) and has currently indicated that payments will be tied to 2019 planted acres. The 2019 MFP could provide incentives to plant crops and not take prevented planting payments. Moreover, this program could bring a little used option into play this year: take 35% of the corn prevented planting payment and plant soybeans after the late planting period for corn. Adding confusion to this situation is a disaster assistance program that, has passed Congress but is not yet signed by President Donald Trump.

 

2019 Market Facilitation Program payments

In a May 23rd press release, the U.S. Department of Agriculture (USDA) outlined the 2019 Market Facilitation Program (MFP). This program is projected to provide $14.5 billion in direct payments to farmers of specific commodities, $4.9 billion more than the $9.6 billion spent on the 2018 MFP. Important details of this program are:

  • Payments will be based on 2019 planted acres to MFP-covered crops. USDA has initially stated that payments will not be received on prevented planting acres but the final details have yet to be released. By itself, this provision provides incentives to plant crops and not take prevented planting payments.
  • MFP-covered crops in 2019 include corn, soybeans, wheat, alfalfa hay, barley, canola, crambe, dry peas, extra-long staple cotton, flaxseed, lentils, long grain and medium grain rice, mustard seed, dried beans, oats, peanuts, rapeseed, safflower, sesame seed, small and large chickpeas, sorghum, sunflower seed, temperate japonica rice, and upland cotton.
  • There will be a single payment rate for a county. That per acre payment rate will be based on total plantings of the MFP-covered crops on the individual farm. Acres planted to an individual crop will not matter other than its contribution to total planted MFP crops on the farm. As an example, suppose that MFP rate for a county is $50 per acre. A farm with 60 acres in corn and 40 acres in soybeans will have 100 MFP acres and receive $5,000. The farm will also receive $5,000 if 40 acres are corn and 60 acres are soybeans.
  • Payments acres in 2019 cannot exceed the payment acres on the farm for the 2018 MFP. This restriction is designed to prevent more acres moving into covered crops, particularly from grasslands or lands typically not farmed. It will most likely be made on a Farm Service Agency (FSA) farm basis. A farm that had 80 MFP-acres in 2018 cannot receive payments on more than 80 acres in 2019
  • Payments will be made in three tranches, the first in late July/early August after the July 15 planting reporting date with the Farm Service Agency (FSA), November, and early January. Whether or not the November and early January payments are made will depend on USDA determination on the need for these payments.

Many important questions remain to be answered regarding 2019 MFP payments; the answers to these questions could affect 2019 planting decisions. The most important question is: What are the 2019 per acre payment rates? The Farm Service Agency (FSA) likely will not release payment rates until after prevent planting decisions have been made.

In addition, questions exist on payment limits. There was a $125,000 per person payment limit on 2018 program. Secretary Purdue indicated that this limit would be structured differently in 2019.

 

Ad hoc disaster assistance in the supplemental appropriations bill

Disaster assistance provisions are contained in a supplemental appropriations bill currently approved by Congress. Among other things, the bill will:

  1. Increase the prevent payment factor on crop insurance up to 90% at the discretion of the Secretary. Currently, prevented payment factors are 55% for corn and 60% for soybeans.
  2. Use the higher of the projected and harvest price in determining prevented planting claims.

 

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