YANKTON, S.D. – Farmers across the U.S. have started collecting their Market Facilitation Program (MFP) payments. These were 50/50 split payments starting last fall based on production. Farmers are now receiving the second half of that payment.
“The MFP payment compensation was put out there to offset the price drop that we've seen in the market,” said Howard Kathol, a farmer and commodity broker with Midwest Market Solutions Inc., during a recent phone interview. “That was due mainly to the effect of, call it the trade war, call it the tariffs that we placed on the goods coming into the United States from China.”
Soybeans fell the hardest as a result of China’s retaliatory 25 percent tariff on many U.S. goods. With around 995 million bushels of soybeans on hand in the U.S. at the time that did not have a buyer anymore, soybean prices dropped fast.
Corn prices also dropped.
“You could make the argument that corn prices came down due to the fact soybeans were plummeting, back in September, October,” said Kathol.
As a result, producers can expect a $1.65 payment for every bushel of soybeans they produced last season. They will also receive a 1 cent payment for every bushel of corn.
“There is an argument there that maybe corn is off more than it should be, but the fact of the matter is corn prices today are currently higher than they were a year ago,” he said. “China does not import much corn, although they have started a little bit.”
“It is a big cash injection to the producers, no doubt about it,” he added.
Keep in mind, producers did not have to sell their grain to receive this payment. This money provides flexibility to their marketing plan that they did not have before.
“All eyes will be strictly on an agreement that the Trump administration and China can come together on,” he said. “That truce is in less than 60 days.”
With a little money in hand from the MFP payments, producers have an opportunity to hang onto their beans longer, and wait for the markets to possibly improve.
On the marketing side, there are two things Kathol wants growers to be aware of. First, there has not been much of an increase in soybean exports to China. The U.S. still has a large amount of soybean inventory that has not shipped out.
“Number two, we are getting into our main growing time period for South America, which seem to be off to a fairly decent start,” he said. “That production will be available for export very soon, if not already, to China.”
Between the U.S. and South America, the world is flush with soybeans right now.
“I would use rallies in soybeans to sell cash,” he said. “I really, sincerely think cash sales in the New Year on any price appreciation is warranted to dump that inventory.”