U OF I ANALYSIS ON MARKET FACILITATION PROGRAM
Many Illinois farmers are harvesting and likely haven’t taken the time to sign up for the Market Facilitation Program, administered by their county Farm Service Agency (FSA) office.
Do not fret! The process was designed to be a one-stop application process that can only be completed in full when your corn and soybean harvests are completed. Plan to check in with the FSA office to apply and certify your final production after your harvest is finished.
In the meantime, U of I experts have proposed some questions, included in an August 28 article entitled, “Market Facilitation Program: Impacts and Initial Analysis.” Please enjoy their quandary of how payment rates on crops were determined.
USDA’s decision to issue these payments outside payments authorized by Congress in the farm bill raises questions. Among the first is how payment rates on crops were determined. In particular, the corn payment rate is low relative to payment rates on other crops.
The payment rates do not appear to align with existing estimates for the decline in crop prices since May. For example, the World Agricultural Supply and Demand Estimate (WASDE) Board estimated 2018-19 market year average prices. Changes from the May report to the August report will provide an estimate of trade impacts using USDA procedures as the May to August coincides the escalating trade conflicts. From the May to August reports, changes in midpoint prices were (see Figure 2 of farmdoc daily, August 16, 2018):
11% ($1.10/bu) decrease for soybeans
6% ($0.20/bu) decrease for sorghum,
5% ($0.20/bu) decrease for corn,
2% ($0.10/bu) increase for wheat, and
15% ($0.10/lb) increase for cotton.
Wheat and cotton have experienced increased prices but are included with relatively large payment rates. Sorghum will receive a payment rate that is more than four times as large as the estimated price decline from May to August. By comparison, corn has experienced a price decline similar to sorghum (both in $/bu and % terms) but will receive a payment rate that results in an average payment of less than $1 per acre.
Other metrics could be used to judge price declines. A simple comparison of price declines for soybeans and corn suggest a high degree of correlation of price declines over the May through July period, with corn and soybeans having roughly similar magnitudes of price declines (see farmdoc daily, July 31, 2018).
In the future, USDA may provide more details on the rationale used to arrive at the payment rates for the alternative crops. In addition, questions related to the timing and rationale for a second payment will be addressed. Moreover, issues related to drought areas may arise, as those areas will receive little aid through MFP due to drought-stricken yields.
Schnitkey, G., J. Coppess, N. Paulson, K. Swanson and C. Zulauf. "Market Facilitation Program: Impacts and Initial Analysis."farmdoc daily (8):161, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, August 28, 2018.
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