By Max Fisher, Director of Economics and Government Relations
Secretary of Agriculture Sonny Perdue on June 10 issued a statement on disaster and trade-related assistance, noting that the U.S. Department of Agriculture (USDA) will provide more information on the trade-related Market Facilitation Program (MFP) payment rates and details of the various components of the disaster relief legislation “in the coming weeks.”
In his statement, Perdue reiterated President Trump’s commitment to provide up to $16 billion “to support farmers as they absorb some of the negative impact of unjustified retaliation and trade disruption.” He also noted the president’s signing into law of long-awaited disaster legislation addressing natural disasters occurring in 2018 and 2019. “Given the size and scope of these many disasters, as well as the uncertainty of the final size and scope of this year’s prevented planting acreage, we will use up to $16 billion in support for farmers and the $3 billion in disaster aid to provide as much help as possible to all our affected producers,” Perdue said.
Here are details USDA has provided to date on MFP, the disaster relief aid, and prevented planting indemnities under federal crop insurance:
Market Facilitation Program (MFP): MFP for 2019 will be administered by USDA’s Farm Service Agency (FSA) and will provide up to $14.5 billion in direct payments to producers to assist with the additional costs of adjusting to disrupted markets, dealing with surplus commodities, and expanding and developing new domestic and export markets. In addition, $1.4 billion is authorized to purchase surplus trade-disrupted commodities and $100 million will be used to assist in developing new export market opportunities.
Under MFP, producers of alfalfa hay, barley, canola, corn, 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, soybeans, sunflower seed, temperate japonica rice, upland cotton and wheat will receive a payment based on a single county rate multiplied by a farm’s total plantings to those crops in aggregate in 2019. Those per-acre payments are not dependent upon which of those crops are planted in 2019. Moreover, total payment-eligible plantings will not be allowed to exceed total 2018 plantings.
Dairy producers will receive a per-hundredweight payment on production history and hog producers will receive a payment based on hog-and-pig inventory for a later-specified time frame.
Tree nut producers, fresh sweet cherry producers, cranberry producers and fresh grape producers will receive a payment based on 2019 acres of production.
MFP payments will be made in up to three tranches, with the second and third tranches evaluated as market conditions and trade opportunities dictate. The first tranche is scheduled to begin in late July/early August as soon as practical after FSA crop reporting is completed by July 15. NGFA’s understanding is the first payment will be larger than the final two payments. If conditions warrant, the second and third payment tranches will be made in November and early January. NGFA has been alerted that the last two payments are conditional on the status of the trade environment later in 2019. Payment rates have not been announced yet by USDA.
The disaster relief legislation enacted on June 3 included a provision that removed the $900,000 income limitation for MFP as long as at least 75 percent of the adjusted gross income of such person or legal entity is derived from farming-, ranching- or forestry-related activities.
Importantly, USDA has advised that MFP payments will not be made to producers for acreage that is not planted, a position that Secretary Perdue reiterated this week. To qualify for a 2019 MFP payment, a producer must plant an MFP-eligible crop. MFP-eligible crops that are planted as a cover crop after filing a prevented planting claim through federal crop insurance may qualify for a minimal amount of MFP assistance.
Disaster Relief Aid: The disaster-relief law (dubbed the “Additional Supplemental Appropriations for Disaster Relief Act of 2019”) provides $3 billion in assistance for losses of crops (including milk, on-farm stored commodities, crops prevented from planting in 2019, and harvested adulterated wine grapes), trees, bushes and vines, as a consequence of Hurricanes Michael and Florence, other hurricanes, floods, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires occurring in calendar years 2018 and 2019.
For producers prevented from planting in eligible areas (generally believed to be disaster areas declared by the president or agriculture secretary), the disaster relief aid in combination with federal crop insurance or the Noninsured Crop Disaster Assistance Program (NAP) is not to exceed 90 percent of their losses. Uninsured producers will be eligible for disaster aid, but their aid may not exceed 70 percent of their losses. Producers that receive disaster aid will be required to purchase crop insurance for the next two crop years, or NAP coverage if crop insurance is unavailable.
While USDA is authorized to add disaster aid to prevented planting coverage for producers in eligible areas, USDA already has stated that it is highly unlikely that the disaster relief aid will support the 90 percent level of prevented planting coverage. As noted previously, Congress appropriated $3 billion in assistance for a wide array of losses resulting from disasters throughout 2018 and 2019, requiring USDA to prioritize how it is allocated. In addition, because the disaster relief aid encompasses 2019, which is less than half over, USDA will have to determine how to deliver aid for existing losses while also budgeting for losses that have yet to occur.
Prevented Planting Indemnities under Federal Crop Insurance: Prevented planting coverage provides a payment to producers unable to plant their crops because of an insurable cause of loss. Most federal crop insurance policies for major field crops automatically include prevented planting coverage. For corn, prevented planting coverage is equal to 55 percent of the insurance guarantee, while for soybeans the coverage level is 60 percent. A 5 to 10 percent buy-up option for prevented planting coverage also is available for most policies.
Producers become eligible for prevented planting payments after the final planting date for the intended crop has expired. Final planting dates vary by crop and region, and are determined by USDA’s Risk Management Agency prior to crop insurance signup. Once the final planting date has expired, producers have five options: 1) plant the intended crop during the late planting period and receive a reduced yield guarantee (1 percent reduction per day up to 20 to 25 days, generally depending upon the crop); 2) plant the intended crop after the late planting period and choose whether to insure the crop – the insurance guarantee would equal the prevented planting coverage; 3) leave the land fallow and receive a full prevented planting indemnity for the intended crop; 4) plant an alternative crop during the late planting window for the intended crop and receive no prevented planting indemnity; 5) plant a cover crop and receive a full prevented planting payment provided the cover crop is not hayed or grazed before Nov. 1, or otherwise harvested at any time. If the cover crop is hayed or grazed before Nov. 1, the prevented planting payment on the first crop is reduced to 35 percent of the first crop’s prevented planting guarantee; or 6) plant an alternative crop after the late planting period for the intended crop and receive 35 percent of the intended crop’s prevented planting indemnity.
If a loss claim is filed on the alternative crop, the producer will receive the alternative crop’s indemnity or the remaining 65 percent of the intended crop’s indemnity, whichever is greater. If the alternative crop is planted during its late planting period, the yield guarantee for the alternative crop will be reduced (1 percent reduction per day up to 20 to 25 days, generally depending upon the crop, past the final planting date).
APH yields are unaffected by prevented planting claims if the land is left fallow. However, if an alternative crop is planted after the late planting period for the intended crop, the intended crop’s yield for the APH calculation is reduced by 40 percent.
Producers do not have to leave whole units unplanted to qualify for prevented planting. Prevented planting can be claimed on the lesser of 20 acres or 20 percent of the crop acres in the insurable unit. This allows for planting on the portions of units that can be planted.
The disaster relief law made a change to prevented planting coverage. Normally, producers’ prevented planting indemnities would be calculated based upon the intended crop’s projected price, but the disaster legislation provides additional authority to USDA to compensate producers based upon the higher of the projected price or harvest price for 2019 prevented planting claims. USDA has stated it currently is exploring legal flexibility to provide assistance that better utilizes the harvest price in conjunction with revenue and prevent planting policies.