Dairy Report: $0.20 per cwt. MFP Payments & Optimistic Milk Prices

The Dairy Report 073019
Ponderosa Dairy - Amanda Arata - Nevada ( Wyatt Bechtel )

Market Facilitation Program payments will soon be issued out while rising milk prices are at the forefront of dairy producers’ minds. AgDay’s Clinton Griffiths explains more in the video above.

MFP 2019 Will Pay Dairy 20 Cents Per CWT

USDA shed some light on the 2019 Market Facilitation Program (MFP) Thursday. Dairy producers who were in business as of June 1, 2019, will receive a $0.20 per hundredweight payment on production history.

From a crop acre standpoint, the agency announced per acre payments will vary by county but will range from $15 to $150. 

Payments will be made by the Farm Service Agency (FSA) under the authority of the Commodity Credit Corporation (CCC) Charter Act to producers of alfalfa hay, barley, canola, corn, crambe, dried beans, dry peas, extra-long staple cotton, flaxseed, lentils, long grain and medium grain rice, millet, mustard seed, oats, peanuts, rapeseed, rye, safflower, sesame seed, small and large chickpeas, sorghum, soybeans, sunflower seed, temperate japonica rice, triticale, upland cotton, and wheat. 

MFP assistance for those non-specialty crops is based on a single county payment rate multiplied by a farm’s total plantings of MFP-eligible crops in aggregate in 2019. County payment rates range from $15 to $150 per acre, depending on the impact of unjustified trade retaliation in that county. See a full list of county rates here. A producer’s total payment-eligible plantings cannot exceed total 2018 plantings. 

Acreage of non-specialty crops and cover crops must be planted by August 1, 2019 to be considered eligible for MFP payments.

Sign Up & Eligibility Details

MFP signup at local FSA offices will run from Monday, July 29 through Friday, December 6, 2019.

MFP payments will be made in up to three waves, with the second and third tranches evaluated as market conditions and trade opportunities dictate. The first tranche will be comprised of the higher of either 50% of a producer’s calculated payment or $15 per acre, which may reduce potential payments to be made in tranches two or three. USDA will begin making first tranche payments in mid-to-late August.

MFP payments are limited to a combined $250,000 for non-specialty crops per person or legal entity. MFP payments are also limited to a combined $250,000 for dairy and hog producers and a combined $250,000 for specialty crop producers. However, no applicant can receive more than $500,000. 

The AGI limits are slightly different this year. Eligible applicants must also have an average adjusted gross income (AGI) for tax years 2014, 2015, and 2016 of less than $900,000 or, 75% of the person’s or legal entity’s average AGI for tax years 2014, 2015, and 2016 must have been derived from farming and ranching. 

As usual, applicants must also comply with the provisions of the Highly Erodible Land and Wetland Conservation regulations.

If conditions warrant, the second and third tranches will be made in November and early January, respectively.

“China and other nations have not played by the rules for a long time, and President Trump is the first President to stand up to them and send a clear message that the United States will no longer tolerate unfair trade practices,” Secretary Perdue said. “The details we announced today ensure farmers will not stand alone in facing unjustified retaliatory tariffs while President Trump continues working to solidify better and stronger trade deals around the globe.”

Dairy Economists Cautiously Optimistic for Second Half of 2019—and Beyond

June’s milk production and dairy product stocks reports all are signs of much better milk prices for the rest of 2019 and beyond, say University of Wisconsin dairy economists Bob Cropp and Mark Stephenson.

In their monthly podcast following the reports this week, Cropp notes that milk production was down 0.3% in June. Cow numbers were down 10,000 head from May, 29,000 from January, and 91,000 from a year ago.

He also notes that butter stocks are down 2.6%. American cheese stocks are also down 2.6% with total cheese down a half percent. 

And while milk powder exports are down 11% and butterfat sales are down 41%, cheese exports are up 9% higher than a year. Because of the tariff brouhaha with Mexico, U.S. cheese sales there have dropped 7%. (Those tariffs have now been lifted, which means cheese sales to Mexico could resume by the fourth quarter.) Fortunately, too, sales to Southeast Asia, Japan and South Korea in particular, have made up the loss of sales to Mexico this year. The biggest problem remains China, with U.S. dairy exports there down by two-thirds. 

“This trade stuff is a little like musical chairs,” says Stephenson. When sales are closed in one place, exporters have to find new markets. It tends to work out eventually, he says, but it is disruptive to trade flows.  

The good news in all of this, say both Cropp and Stephenson, is that milk prices are rebounding. Cropp expects Class III prices to stay above $17 this summer and reach $18 by the fourth quarter. He expects prices to be 50₵ to $1/cwt higher next year. Prices may dip to $16 in the first quarter of 2020, but then rebound above $17 for the rest of the year.

Stephenson is even more optimistic. For one thing, farmers won’t be able to afford large capital expenditures next year as they rebuild their balance sheets, he says. Plus, heifer numbers are a couple of percent lower than normal. 

“I’m not looking at another 2014 (when all-milk prices averaged $24),” he says. But he expects the all-milk price to reach $18.50 early next year, go over $19 in the second quarter, and top $20 by the third quarter.

“It’s possible,” says Cropp. “Forage quality is a problem and feed prices will likely be higher next year.”

On a final note: Stephenson and Cropp are urging dairy farmers to sign up for Dairy Margin Coverage (DMC) if they have not yet done so. Stephenson notes that the DMC payments  for the first five months of 2019 (along with the premium discount) are almost enough to provide $9.50 coverage for Tier 1 production for all five years of the program.

“It’s not a bad thing to just do that and know you’re protected for the next five years,” he says. 

You can listen to all of their podcast here.