The USDA recently provide additional details on the second iteration of the Market Facilitation Program (MFP) to be implemented over the next year. To review, the 2018 MFP was initiated to “provide aid to assist farmers hurt by trade disruptions prompted by unjustified foreign retaliatory tariffs on their products…” The 2018 MFP payments were based on the commodity produced and the amount produced. By commodity, those payments ranged from lower rates ($0.06/lb for cotton; $0.01/bu for corn; and $0.14/bu for wheat) to much higher rates ($0.86/bu for sorghum; $1.65/bu for soybeans) depending on the degree to which each commodity price had been impacted by the trade disruption. The 2019 MFP payments are structured much differently, as per acre payment rates are established, by county.
“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 per acre payments are not dependent on which of those crops are planted in multiplied by a farm’s total plantings to those crops in aggregate in 2019. Those per acre payments are not dependent on which of those crops are planted in 2019, and therefore will not distort planting decisions. Moreover, total payment-eligible plantings cannot exceed total 2018 plantings.”
Below is a map of the per acre payment rates:
As with the 2018 MFP, payments are concentrated in the midwest region largely due to the production of soybeans and the impact of higher tariffs on soybean exports to China. However, the payments in the 2019 MFP also appear to be concentrated in the southern cotton-growing region. This is notable given the fairly small payments to cotton farmers under the 2018 MFP. County Payment rates range from $15 to $150 per acre. In the figure below we zoom into Montana.
Payments in most Montana counties fall to the lowest payment rates of $15 per acre, while a few counties the rates are slightly higher: Chouteau ($16), Daniels ($17), Flathead ($16), Gallatin ($16), and Sheridan ($18). The low payment rates in Montana can be mostly explained by a relatively small wheat trade with China prior to the trade disruption.
To better understand the role that commodities play in the determination of these payment rates, I ran a simple regression to try to explain payment rates and impact from the percent of planted acres from each of the main commodities (corn, cotton, soybeans, sorghum, and wheat). The results are below:
These results indicate that counties with a high percentage of cotton and sorghum production will have some of the higher per acre payment rates. For example, the average county that includes 100% planted acres in cotton would anticipate a payment of $134.6 [= 66.2 + 71.4]. This is consistent with counties receiving the maximum per acre payment of $150 residing in cotton-growing states, such as Alabama, Arizona, Georgia, Mississippi, New Mexico, and Texas.
State fixed effects were also included to capture any differences in payment rate that is not explained by commodity mix alone. For example, the fixed effect for Montana was -44, which indicates an expected value of $16.2 [=66.2-6.0-44.0] per acre, which is pretty close to the actual values in the state. It is worth noting that some of the largest negative fixed effects came from the west and included Montana (-44), Wyoming (-43), Washington (-40), and Idaho (-39). I am not sure why states in the west have such low payment rates, compared to other regions and after accounting for crop mix. Any thoughts?