New NAFTA and MFP Details - Wednesday, 29 August 2018

Update for August 29th, 2018

NAFTA as we knew it to be in the past has ended thanks to a new U.S. and Mexico Trade Agreement.  According to the Wall Street Journal the U.S. and Mexico announced that an agreement had been reached on the key issues between the two countries but still requires the approval of both the U.S. and Mexican legislatures to be finalized. This week the top trade negotiator for Canada arrived in Washington and has joined in meetings to work on remaining part of a trilateral North American trade pact. 

The agreement reached between the U.S. and Mexico regarding agricultural goods will require no tariffs on each other’s goods and no export subsidies can be used. The original NAFTA firmly established free trade for agriculture and this new deal preserves most of those provisions.

The USDA announced Monday the detailed plans for the Market Facilitation Program which is a direct payment to farmers that will be used in response to recent trade retaliations from China. The application process will open to interested producers on September 4th and can be applied for once their harvest is 100% completed and can report their total production for 2018. MFP applications will be available online at www.farmers.gov/MFP. To be eligible for the program applicants:

  • Must have an ownership interest in the commodity
  • Be actively engaged in farming
  • Have an average adjusted income of less than $900,000 for the tax years of 2014, 2015 and 2016
  • Must comply with the provisions of the Highly Erodible Land and Wetland Conservation regulations.


The initial payment period that begins on September 4th will be calculated by multiplying 50% of the producer’s total 2018 production by the MFP payment rate for that specific commodity. The remaining 50% of the producer’s total 2018 production will be paid at a second MFP rate if the CCC announces a second payment period. MFP payments will be capped per person or legal entity at a combined total of $125,000 for corn, soybeans, cotton, sorghum, wheat, dairy production and hogs.

 

Market Facilitation Program

 

 

Commodity

 

Initial Payment Rate

Est. Initial Payment**

(in $1,000s)

Cotton

$0.06 / lb.

$276,900

Corn

$0.01 / bu.

$96,000

Dairy (milk)

$0.12 / cwt.

$127,400

Pork (hogs)

$8.00 / head

$290,300

Soybeans

$1.65 / bu.

$3,629,700

Sorghum

$0.86 / bu.

$156,800

Wheat

$0.14 / bu.

$119,200

Total

 

$4,696,300

 

** Initial payment rate on 50% of production

Last week we all learned the results of the Pro Farmer Midwest Crop Tour which projected the U.S. corn yield at 177.3 bushels per acre and total crop production of 14.504 billion bushels.  At the current time the USDA has the corn yield estimated at 178.4 bushels per acre with total production of 14.586 billion bushels, which would be the smallest crop production out of the past 3 years. Also keep in mind that ending stocks are currently estimated at 1.68 billion bushels considerably lower than the +2 billion bushels ending stocks in both 2016 and 2017.  This year we planted -1 million fewer corn acres than in 2017 and about ½ million less acres than in 2016. The big question now is how many acres will be planted to corn in 2019 given the ongoing trade issues. The recent estimate adds an additional +5 to +6 million acres to 2019’s corn acres. The graph below from the Van Trump Report shows the comparison between the estimated yields from the Pro Farmer Tour and how they match up with the final USDA yields.

 

 

The Pro Farmer Midwest Crop Tour results for soybeans indicates we will see a new U.S. record average yield of 53 bushels per acre producing a record 4.633 billion bushels in 2018. The current USDA estimate is a bit lower with an average of 51.6 bushels per acre putting total production at 4.586 billion bushels. Right now the total demand for exports and domestic crush is forecast at 4.256 billion bushels which is very close to where it has been for the past 2 years.  Given the current trade issues some traders are questioning if the USDA is over estimating total soybean demand for this year. The graph below from the Van Trump Report shows the comparison between the estimated yields from the Pro Farmer Tour and how they match up with the final USDA yields.

 

 

Ag Secretary Sonny Perdue said that President Trump called him and has assured him that he wants to see year-around E15 a reality. Perdue hopes that the Trump Administration will have an announcement on the ethanol blend soon and stated that, “there needs to be some rebalance with refiners”. According to Politico the Acting EPA Administrator Andrew Wheeler is in favor of the year-round E15.

Net cash farm income and net farm income are 2 commons measures of the farm sectors profitability.  Inflation adjusted U.S. net farm income is projected to fall by $11.4 billion (14.8%) from a year ago to $65.7 billion in 2018.  Inflation adjusted U.S. net cash farm income is expected to fall by 14.6 billion (13.8%) to $91.5 billion both of these declines are largely due to higher production costs.  In addition government payments are forecast to fall by $2.3 billion (19.1%) in 2018. This government payments forecast does not take in to account the newly announced MFP because it is too soon to know how many producers will enroll and receive payments yet in 2018. (Source USDA-Farm Sector Income and Finances August 30, 2018)

 

The long Labor Day holiday weekend looks to be a wet one for a large portion of the country.  The 5 day forecast shows broad coverage of 1-2” rain across the Corn Belt with localized amounts reaching over 3-4”.

 

The National Weather Service has issued the long range forecast through mid- September which shows above average rainfall with above average temps expected across the Heartland.

 

 

 

 

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