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Market Facilitation Program: What is available to cover my marketing losses from trade tariffs?

Oct 1, 2018

By Yangxuan Liu

Download the PDF version of this article. 

U.S. Department of Agriculture releases details about the spending plans for $12 billion in trade aid package for farmers. The main component of the aid package is the Market Facilitation Program (MFP). MFP is authorized under the Commodity Credit Corporation (CCC) and administered by Farm Service Agency (FSA). MFP provides a direct payment to help producers who have been negatively impacted by foreign governments imposing tariffs on U.S. agricultural products.

MFP payment rates will consist of two announced payment rates. The first rate is announced on September 4, 2018 for the first payment rate and applies to 50% of the producer’s 2018 actual harvest production. On or near December 3, 2018, if applicable, the second payment rate will be announced and will apply to the remaining 50% of the producer’s 2018 production. For each commodity covered, USDA has set the first payment rates for the 50% of the producer’s 2018 actual harvested production as follows:

  • Cotton – $.06 per pound, estimate total payments of $277 million
  • Corn – $.01 per bushel, estimated total payments of $96 million
  • Soybeans – $1.65 per bushel, estimated total payments of $3.6 billion
  • Sorghum – $.86 per bushel, estimated total payments of $157 million
  • Wheat – $.14 per bushel, estimated payments of $119 million
  • Hogs – $8 a head, estimated payments of $290 million
  • Milk – $.12 a hundredweight, estimated payments of $127 million

The signup started on Tuesday, September 4, 2018 until Tuesday, January 15, 2019. For cotton producers, you can sign up with FSA now and update later to FSA with your production record, e.g. ginning records.

MFP payments are capped per person or legal entity at a combined $125,000 for corn, cotton, sorghum, soybeans and wheat, and another $125,000 for dairy and hogs. This payment cap applies to MFP only. The $125,000 payment cap for Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments is a separate cap. Eligible applicants must have an ownership interest in the commodity, be actively engaged in farming and have an average adjusted gross income (AGI) for tax years 2014, 2015 and 2016 of less than $900,000. Producers will have the option to submit CCC-910’s and report production in person, by mail, or electronically to FSA.

Economic Productivity and Profitability Analysis for Whiteflies and Tomato Yellow Leaf Curl Virus (TYLCV) Management Options

Sep 21, 2018

By Esendugue Greg Fonsah, Chen, Yu, Stan Diffie, Rajagopalbabu Srinivansan and David Riley

Introduction: (Complete version of journal article is attached here).

In 2015, the United States was the second largest producer of tomatoes in the world.   The U.S. produces tomato for fresh and processed markets respectively, and both markets contribute over $2 billion in annual farm cash receipts. In the state of Georgia, tomato is one of the most important commercial crops and ranks amongst the top ten vegetables in terms of farm gate value.  For instance, from 2009 to 2014, tomato contributed over $265 million to the state economy. Tomato yellow leaf curl virus (TYLCV), transmitted by whiteflies, are a major threat to tomato production around the world.  The spread of the virus in the field and in glass houses is directly correlated to increase in whitefly population. The virus was first seen in Israel in 1950.  Almost 50 years later, the virus was seen in Florida, Georgia, the Carolinas, Texas and California.  Infected plants show symptoms of stunting, flower abortion, curling of leaflet margins, yellowing of young leaves, inferior overall cosmetic appearance of fruits quality and decreased yields.  It is common to experience yield losses of up to 100% in affected fields.  Also there is no official estimate of losses caused by this virus but it is assumed to be in the tens of millions of dollars.

Although several studies discussed the economic evaluation for preventing tomato with respect to pesticide use, exclusion screen, intercrop and cultivars, there are limited studies that provide economic analyses of TYLCV prevention and management options. As a result, the objective of this study was to develop an economic productivity and profitability analysis aimed at determining the financial and economic viability, if any, of managing TYLCV.

Methods

This experiment was conducted at the Horticulture Farm, Coastal Plains Research Station, University of Georgia, Tifton, during the summers of 2013-2015.  We specifically evaluated the use of TYLCV-resistant cultivars, metallic silver mulch, and the use of the insecticides relative to white mulch, a TYLCV-susceptible tomato, and a no insecticide check, respectively.  The experimental response variables measured were whitefly adult, immature and egg incidence, TYLCV symptom severity, and marketable yield.  Tomato cultivars used included Shanty, Security, Tygress and the susceptible cultivar FL-47.  The types of mulch used were reflective and a standard non-reflective white mulch.  Insecticides used were cyantraniliprole, applied at 13.5 fl. oz. per acre, imidacloprid at 10.5 fl. oz. per acre and water as a control.   Each treatment was replicated 4 times.

Results

The inputs used in the economic analysis of insecticides for the management of whitefly- transmitted TYLCV in tomato production were slightly different from the conventional tomato production practices.  For instance, the planting materials were TYLCV-resistant lines plants, which cost $466/ac.  Silver mulch was $513/ac while insecticide used to control white flies was $159/ac.  The combined fertilizer cost was $692/ac.  Fumigation, fungicides and labor costs were $570, $189 and $550/ac respectively.  Total pre-harvest variable cost (P-H VC) was $4,200/ac.

A sensitivity analysis based on total cost of production showed that an expected net return of producing tomatoes in the presence of TYLCV was $1,958/ac and obtainable 50% of the time.  The result further showed that $-887 may be obtained 7% of the time in a worst case scenario while a rare net return of $4,802 is also realizable 7% of the time.  These results reconfirm the importance of good agricultural practices and adherence to management recommendations from research and extension scientists in successfully managing whitefly-transmitted TYLCV (Table 1).

Table 1:  Sensitivity Net Return of producing tomatoes in the presence of whitefly-transmitted tomato yellow leaf curl virus (TYLCV) in the Southeast USA, 2017.

Net return levels (TOP ROW);
The chances of obtaining this level or more (MIDDLE ROW); and
The chances of obtaining this level or less (BOTTOM ROW).
Best Optimistic Expected Pessimistic Worst
Returns ($) 4,802 3,854 2,906 1,958 1,010 62 -887
Chances (%) 7% 16% 31% 50%
Chances (%) 50% 31% 16% 7%
Chances for Profit 85% Net Revenue $1,958

Acknowledgment: We acknowledge the technical help rendered by Mr. Simmy Meckeown, and numerous student workers at the vector biology laboratory, UGA, Tifton, during the course of this study.  This project was partially funded by USDA AFRI Grant 2012-67007-19870 for which the authors are grateful.

Cotton Outlook

Sep 18, 2018

By Yangxuan Liu and Don Shurley

Download the PDF version of this article.

In 2018, Georgia’s farmers planted 1.43 million acres of cotton, up 150,000 acres from 2017. The average cotton yield is forecast at 946 pounds per acre. Production is forecast at 2.8 million bales, which would be the second highest on record. There are two major contributing factors to the increase in cotton acres in Georgia. First, the relatively high cotton price in 2018, especially during planting season, makes cotton more competitive with other row crops. Second, the Bipartisan Budget Act of 2018 authorized seed cotton as a covered commodity and eliminated generic base and thus the eligibility for payments when planting other covered commodities on farms with generic base.

U.S. cotton planted acreage is 14.04 million, up 1.43 million from 2017, which is the highest planted acres since in 2011. The 2018 U.S. upland cotton is forecasted at 18.9 million bales, down 1.31 million bales from 2017. The reduction in production is largely due to the severe drought conditions in Texas. Even though Texas planting acres increased by 12 percent, the production level reduced by 30 percent from 2017. The forecasted production number might be further negatively impacted by Hurricane Florence on North and South Carolina.

World cotton use or demand has improved significantly in recent years and currently forecast at a record level. Even though U.S. cotton faces an additional 25 percent increase in tariffs on cotton exports to China due to the on-going trade dispute between U.S. and China, U.S. cotton exports are doing very well and are expected to continue to be strong for the 2018-2019 crop year. Exports are currently forecasted to be 15.7 million bales for the 2018 – 2019 crop year, which would be the second highest on record.

The U.S. ending stocks for the 2018 – 2019 crop year are expected to increase to 4.7 million bales. The U.S. cotton industry has benefited from the growth in mill use in other countries. If U.S. sales of cotton into China decline as a result of a Chinese tariff, it is possible that sales to mills in other countries could increase to offset part of the decline in China. A Chinese tariff on U.S. raw cotton could continue to stimulate Chinese imports of duty-free yarn from Vietnam, Indonesia, and the Indian subcontinent. The demand for higher-quality U.S. cotton in those markets could continue to expand. Thus, the impact of a bilateral Chinese tariff on U.S. cotton may lead to a reshuffling or rerouting of, rather than a reduction in, U.S. cotton exports.

China is the world’s largest user of cotton but now the world’s third-largest cotton importer behind Bangladesh and Vietnam. Starting in 2011, the Chinese price support policy had resulted in buildup of ending stocks. In 2014, the Chinese cotton policy shifted from price supports and building government reserves to paying growers with direct cash payments in order to reduce the government cotton reserve. China’s ending stocks for the 2018 – 2019 will continue to decrease and are forecasted to total 29.9 million bales. For 2018, China has approved 800,000 tonnes of additional cotton import quota, which is in addition to the annual 894,000 tonnes of low tariff rate quota that China issues as part of its commitments to the World Trade Organization. This is the first time that China has issued any additional quota since 2013.

Futures prices (Dec 18) for the 2018 crop are currently at or around 82 cents per pound. We have been seeing favorable cotton prices this year, the cash prices for the current calendar year of 2018 ranges from low of 74.60 to high of 94.21 cents per pound. USDA is forecasting the marketing year average price for the 2018 – 2019 crop year to range from 70 to 80 cents per pound, compared to the 2017 – 2018 crop year average of 68 cents per pound.

The Impact of China’s Potential Cotton Tariffs on U.S. Cotton Exports

Jun 29, 2018

By Yangxuan Liu, John R. C. Robinson, and Don Shurley

On April 4th, 2018, China announced a potential 25 percent increase in import tariffs on major U.S. origin agricultural commodities in retaliation to a series of tariffs proposed by the United States. United States upland cotton is one of the commodities affected by this proposed increase in import tariffs. The export market is an important source of demand for the U.S. cotton industry. The United States is the largest cotton exporting country with around 71.3% of cotton produced in the U.S. exported last year. China is the second largest trading partner with the U.S. for cotton in 2017 and buys 16.7% of the U.S. cotton exports. The total value of cotton exported to China was worth approximately $976 million last year, which is the second highest value among all the other row crops after soybean.

If Chinese tariffs are imposed on U.S. cotton, global cotton suppliers like India, Australia, and Brazil may experience a near-term opportunity to supply more cotton to China. In the short run, the market disruption could be a shock to the U.S. cotton futures market, particularly if hedge fund speculators sell off their long positions. However, the longer-term situation could see more U.S. exports rerouted to other cotton importing countries. This recent history of the change in China’s internal cotton policy suggests a similar reshuffling effect from a bilateral Chinese tariff on imported U.S. cotton. Chinese raw cotton import tariffs would continue to stimulate imports of duty-free yarn from Vietnam, Indonesia, and the Indian subcontinent.

Click here to download the full publication.

China’s Tariff Impact on Georgia Pecan Industry

Jun 29, 2018

By Dr. Esendugue Greg Fonsah

The U.S. and Chinese Trade War will have a negative impact on the Georgia pecan industry if not resolved.  The United States produces 80% of the world’s pecans and Georgia remains the number one producer of pecans with a record 50-70% exported to China for almost a decade (Hargreaves, 2013). The high demand for pecans has also triggered a market distortion from the traditional distribution channel (grower-processor-consumer) to direct marketing and sales.  An additional 15% tariff on nuts and fruits will create a major impact to the Georgia pecan industry as it will increase the cost of pecans, thus reducing the quantity exported to China. That would in turn increase domestic quantities since the bulk of Georgia pecans that were destined to China will be floating in the domestic market.  So far, China remains the main market for U.S. pecans although a small quantity goes to India, South Korea, Turkey and Vietnam (Andrew, 2017).   Although the U.S. might successfully look for alternative markets, it will be difficult for these new/emerging markets to absorb the large volume of stock created by the possible reduction in export to China.  With the large pecan production and acreage expansion currently going on, the domestic market might be flooded and eventually dampen prices.

Click here to download the full publication.

The Impacts of Chinese Tariff on Georgia Agriculture

Jun 29, 2018

By Yangxuan Liu, Esendugue Greg Fonsah, Levi Russell, Adam N. Rabinowitz, and Don Shurley

The uncertainty in trade policy between China and the U.S. creates concerns among the agricultural community. We recently released an extension publication, named The Impacts of China and United States Trade and Tariff Actions on Georgia Agriculture: the Perspectives of UGA Agricultural Economists. Georgia agriculture produces many of the items targeted by Chinese tariffs, including nuts, fruits, soybean, corn, wheat, sorghum, cotton, pork, beef, and tobacco. The Chinese retaliatory trade tariff on products of U.S. origin would have a negative impact on Georgia’s agriculture and economy. However, the magnitude of the impact of these new tariffs on Georgia’s agricultural industry is unclear.  In this extension publication, we discussed in detail about the Chinese tariff and its potential impact on pecan, cotton, soybean, corn, wheat, sorghum, and livestock industry.

Click here to download the full publication.

 

Changes to the Dairy Program from the House-Passed Farm Bill

Jun 26, 2018

by Levi Russell

H.R. 2 of the 115th Congress, the Agriculture and Nutrition Act of 2018 passed by a 2-vote margin in the house on June 21, 2018. On June 25th it passed a motion to proceed in the Senate and is now being debated. There are some key differences between this bill and the current Senate version I wrote about here. At this time it is not clear which version of the Farm Bill will become law or if other changes will be made. In this post I will go through the changes the House bill makes to what is currently known as the Dairy Margin Protection Program. I will continue to post updates to https://fareblog.uga.edu as the process continues.

There are several changes made to the Dairy Margin Protection Program in the House bill. Some of them address concerns the industry has voiced while others make the program cheaper and more flexible for small and medium size dairies. Below are a list of these changes.

  • The program is renamed the Dairy Risk Management Program and is authorized through 2023
  • Calculation of the Actual Margin remains the same as well as most of the changes made back in February, such as the monthly calculation of the margin and payments
  • Coverage levels of $8.50 and $9.00 are added for Tier I only
  • Producers can buy coverage ranging from 5% to 90% instead of the previous 25% to 90% limits. Coverage can be purchased in 5% increments
  • The table below details the new premiums for Tier I. Tier II premiums are the same as in the 2014 Farm Bill. In general, Tier I premiums are about 1/5 of premiums in the 2014 Farm Bill.
  • The House directs the Secretary of Agriculture to address a few issues with the feed cost component of the margin:
    • The Secretary is to conduct a review of feed cost calculation and to determine whether it reflects actual costs paid by dairy producers
    • A report is to be made on the use of corn silage as a feed ingredient including a report on the cost difference between the use of corn silage and corn
    • NASS will revise monthly alfalfa price survey reports to include high-quality alfalfa prices in the top-five dairy producing states as measured by the volume of milk produced in the previous month
  • The House bill allows producers to use both LGM and Dairy Risk Management, but not on the same production. For example, half of a producers’ production could be covered by LGM while the other half could be covered by the Dairy Risk Management Program
  • Production history updates for the purpose of payment calculations end as of 2018
  • Payments to a dairy are prohibited if the Secretary of Agriculture determines that the dairy business was reorganized expressly for the purpose of qualifying as a new operation
  • Producers have 90 days after the passage of the bill to elect a margin coverage level for the duration of the program

In general these changes make the program less costly for producers to cover 5 million pounds of milk or less. The combination of allowing producers to cover as little as 5% of their production and the significantly lower Tier I premiums accomplish this. In addition, the flexibility to use LGM and the Dairy Risk Management Program is likely to be helpful in managing risk across the entire operation. Time will tell whether the House or Senate versions or some compromise between the two make it into law. Subscribe to the blog in the upper-left corner if you’d like to receive updates in your email!

 

 

Tentative Changes to Dairy Support in the 2018 Farm Bill (Senate)

Jun 26, 2018

by Levi Russell

UPDATE: This post has been updated to include information from Senate amendments passed June 27th and 28th, 2018. The changes have been made by marking through the previous text and adding new text after it in italics.

Last night’s cloture vote on the 2018 Farm Bill in the Senate is an indication that we are progressing well on passage of a bill this year. Though that vote was for the House version of the bill (which you can read about here), I thought I’d give an update on my reading of what the Senate Ag Committee changed in Title 1 for dairy since the changes are significant. Keep in mind that things are in flux right now and that this information could be obsolete in the near future. If that is the case, I will write a new post to let you know and provide updates to the process as it unfolds.

The Margin Protection Program has been renamed Dairy Risk Coverage and extends through the year 2023. The basic logic of the program remains the same, but there are significant changes to margin coverage levels and premiums. The margin calculation remains the same.

  • Premiums are still split into two tiers and the threshold remains the same. Lower premiums for less than or equal to 5 million pounds of milk covered and higher premiums for milk covered in excess of 5 million pounds.
  • Premiums are discounted based on the dairy’s total annual production. For dairies with 10 million pounds or more of production, there is no discount. For dairies with 2 million to 10 million pounds of total annual production, there is a 25% discount on all premiums. For dairies with 2 million pounds of production or less, there is a 50% discount on all premiums.
  • In addition to the $4.00, $4.50, $5.00, $5.50, $6.00, $6.50, $7.00, $7.50, and $8.00 margin coverage levels producers covering less than 5 million pounds of milk can choose $8.50 and $9.00 coverage levels.
  • Producers can select a catastrophic coverage level that covers a $5.00 margin. Producers can cover 40% of historical production. No other choice of coverage level is allowed under the catastrophic coverage option.
  • Producers who select catastrophic coverage will be required to pay an additional $100 administrative fee on top of the original $100 administrative fee carried over from the 2014 Farm Bill. There is no other premium associated with catastrophic coverage.
  • There is no longer a 25% minimum production coverage level. Producers can choose coverage as low as 5% up to 90% of their production in 5% increments.
  • Production history is still based on 2011-2013 production, but adjustments will end in 2019.
  • Other changes made in the Bipartisan Budget Act of 2018 remain the same, such as the monthly calculation of the margin and payments.
  • Producers who paid MPP premiums in excess of the indemnity payments they received in 2015, 2016, and 2017 will receive a refund of the difference between the premiums they paid and the payments they received.

The tables below show the premiums for the three different levels of annual production. In general, premiums for both Tier I and Tier II are higher than the current premiums for 2018. However, these higher premiums are offset to some extent by discounts for what the proposed law calls “small and medium” dairies. The 50% discount for dairies with 2 million pounds of annual production or less pushes the new premiums lower than those in the Bipartisan Budget Act of 2018 this year. The 25% discount offsets the increase in premiums to a degree, but not completely.

The program is now more flexible in that it allows producers to purchase coverage for as little as 5% of their annual production. While this doesn’t offset the higher premiums, it does allow producers to cover a smaller percentage of their production if they wish. For example, a larger dairy could use hedging techniques or the new dairy insurance product created by Farm Bureau to manage most of their risk and still participate in the Dairy Risk Coverage program at a lower level.

I will keep this site updated with new information as votes occur and changes are made.

 

 

 

 

 

 

 

Tariff Retaliation Already Hitting the Pork and Dairy Industries

Jun 12, 2018

by Levi Russell

Recent tariffs imposed on steel and aluminum imports to the U.S. from Canada, Mexico, and the European Union (EU) have resulted in retaliation in the form of tariffs on a range of U.S. exports to those countries. Incomplete lists can be found here, but the biggest concerns in terms of agricultural trade are Mexican tariffs on pork and cheese.  Mexico is responsible for a significant portion of all U.S. exports of pork (32% in 2017) and cheese (up to 28% annually), but the full effect of these tariffs is currently unknown.

New Mexican tariffs on cheese include a 15% duty on fresh cheese and a 10% duty on shredded or powdered cheeses. These duties increase to 25% and 20%, respectively, after July 5th. The new tariffs on pork include a 20% tariff on all chilled or frozen pork as well as cooked ham and shoulder products and a 15% tariff on pork sausages. The U.S. is still allowed to export pork to Mexico duty free under their 350,000 metric ton quota. However, this limit is only 43% of U.S. pork export volume in 2017 and the U.S. must compete with other exporting countries for this quota. To put it simply, the 350,000 metric ton quota is “first come, first served.”

The higher tariffs will likely have a severe impact on the dairy industry. U.S. Dairy Export Council President and CEO Tom Vilsack has indicated that the tariffs will make it very difficult for the U.S. to compete with other countries for exports to Mexico, putting $391 million worth of exports at risk.

The tariffs on pork will likely be prohibitive, meaning that pork otherwise exported to Mexico will have to find a new home. Wherever that pork is exported, it will likely receive a somewhat lower price. Given the demand-driven markets for pork, chicken, and beef this year (due mostly to significant supply side growth the past few years) make this especially concerning.

What Farmers Need to Know about Crop Insurance and Prevented Planting

Jun 1, 2018

by Adam N. Rabinowitz and Yangxuan Liu

Southern Georgia has seen a lot of rain during the month of May.  The table below shows the precipitation and number of rainy days in 2018 compared to the average from 2015-2017 for four selected areas in southern GA.  Precipitation in 2018 has been, on average, more than twice that of the previous three years.  The number of rainy days has also been more than twice the previous three-year average.

Southern Georgia Rainfall Data for May 1 through May 29  
2018 2015-2017 Average
  Precip. (in) # Rainy days   Precip. (in) # Rainy days
Tifton 6.91 14 2.02 6.33
Camilla 5.16 13 3.26 5.33
Midville 6.74 14 2.98 7.00
Plains 7.11 14   2.94 6.33
Source: https://weather.uga.edu

Subsequently, planting issues have occurred for farmers who typically plant cotton and peanuts during the month of May.  According to the USDA National Agricultural Statistics Service, only 65% of cotton and 73% of peanuts have been planted through May 27th.  This compares to an average of 72% for cotton and 81% for peanuts for the similar period during 2015-2017.  With saturated fields and more rain in the forecast, farmers need to start thinking about whether all their intended plantings will occur following sound agricultural practices.  It is also important to think about how this relates to their crop insurance policy, planting deadlines, and prevented planting eligibility for 2018.

Over 90% of Georgia peanut and cotton farmers typically select some form of crop insurance coverage.  Included in this coverage is a prevented planting provision that provides payments when extreme weather conditions prevent expected plantings by the final planting date or during the late planting period.  The USDA Risk Management Agency (RMA) announces the final and late planting dates, which vary by crop, coverage type, and county.  The table below identifies the final planting date and the end of the late planting period for peanuts and cotton in GA.  Coverage during the late planting period is reduced by 1% for each day after the final planting date, up to the end of the late planting period.

Peanut Revenue & Yield Protection
Final Planting Date End of Late Planting Period Date Counties
5/31/2018 6/10/2018 Jefferson, Johnson, Laurens, Montgomery, Richmond, Treutlen, Washington, Wilkinson
6/5/2018 6/15/2018 All other counties
Source: USDA Risk Management Agency
Cotton Revenue & Yield Protection
Final Planting Date End of Late Planting Period Date Counties
5/25/2018 6/4/2018 Bartow, Chattooga, Elbert, Floyd, Franklin, Gordon, Hart, Henry, McDuffie, Monroe, Morgan, Oconee, Polk, Spalding, Walton, Warren
6/5/2018 6/15/2018 All other counties
* There is a special provision starting in 2018, which will allow for coverage of Upland Cotton planted five days after the end of the late planting period.  If Upland Cotton is planted during that five-day period, it is not eligible for prevented planting.
Source: USDA Risk Management Agency

If planting by these deadlines is not possible, it is important that farmers maintain proper records that document the cause.  Keep in mind that planting decisions must be based on sound agronomic and crop management practices.  If it appears that it will be difficult to finish planting by the final planting date or during the late planting period, farmers should contact their crop insurance agent and discuss their options.

A full publication is available (click here to download) that includes the above information, frequently asked questions, answers, and links to additional resources.