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MFP payments help, but crop marketing is critical

By Staff | Aug 16, 2019

Farmers are headed to their local USDA Farm Service Agency (FSA) office in August to sign-up for the new Market Facilitation Program (MFP). Those payments will be made on 2019 corn and soybean planted acres on a farm, not to exceed 2018 plantings.

Payments will vary by county with a statewide range between $40 and $79 per acre and an average of $66 per acre. The first payment will be comprised of 50 percent of a farm’s payment rate. Total MFP payments will potentially be made in three portions, depending on the status of Chinese tariffs placed on U.S. agricultural products. If conditions warrant, the second and third payments of 25 percent each are planned for November and January, respectively.

These MFP payments will be welcome by most all farmers. However, even if all 3 payments are eventually made, they reflect less than 15 percent of that farm’s likely 2019 total crop revenue. These new MFP payments on a per bushel basis should be added to the farm’s final cash prices received. Consider the statewide average payment of $66 per acre. A full payment would reflect roughly $.36 per bushel on 180 bushels per acre final corn yield. For soybeans, the total MFP payment would reflect about $1.32 per bushel on 50 bushels per acre final yield.

Crop insurance may be another source of crop revenue with the potential for crop insurance indemnity payments. Claims could be larger this fall with not only the uncertainty of final crop yields, but harvest prices determined in the month of October. Most all farmers are using crop revenue protection that guarantees the farm’s actual production history (APH) and the higher of the spring projected price or harvest price. Those spring projected prices were $4 per bushel for corn and $9.53 per bushel for soybeans, respectively. Most farms insure their farm’s revenue at the 80 to 85 percent coverage level. Lower final yields at harvest along with lower harvest prices could trigger crop insurance indemnity payments.

Marketing the crop and the final cash prices received will be the final step to determine whether row crop farming was profitable in 2019. Farmers should have started the spring by developing a crop marketing plan, preferably in writing. It should have contained both reasonable futures and cash price objectives. Farmers could then pre-harvest market a portion of their new crop corn bushels during the growing season when futures prices were above the projected spring price. Those farmers could then deliver these priced bushels at or shortly after harvest and avoid additional storage costs and interest charges while generating necessary cash flow needs.

Farmers are encouraged to use a variety of marketing tools to spread their price risk and attempt to time their sales when futures prices are high. The most critical time is usually the spring months. Then lock in harvest delivery basis early or deliver the corn shortly after harvest when basis strengthens. Corn futures will likely lack carry and expect some of the most attractive harvest basis bids in the past 4 years.

Pre-harvest marketing soybeans at attractive futures prices has been more challenging. Consider focusing on the January 2020 soybean futures contract that could allow more time for a futures price rally impacted by both the uncertainty of U.S. production as well as South American planting conditions. On-farm storage typically used for corn might have to be used for unpriced soybeans. A large carry exists in soybean futures, along with extremely wide basis.

Don’t forget to combine your new MFP payments to your final cash prices received.

For more information and tools on marketing grain, check out ISU’s Ag Decision Maker at www.extension.iastate.edu/agdm/cdmarkets.html

Steve Johnson is an Iowa State University Extension and Outreach farm management specialist. He can be reached at sdjohns@iastate.edu.

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