Federal money provided a lifeline for farmers facing 'a trifecta of challenges,' but what does the future hold?
The Market Facilitation Programs, Wildfire and Hurricane Indemnity Program-Plus and the Coronavirus Food Assistance Programs helped save farms. But most people in agriculture acknowledge that public and Congressional support for such programs is waning.
Jason Frerichs remembers learning about President Donald Trump’s tariff trade war during calving. It was snowing in April.
“I remember watching my phone because I usually keep an eye on some of the overnight markets, if I wake up during calving. That was just a start,” said Frerichs, a Wilmot, S.D., farmer and rancher.
To make up for the dramatic drop in soybean and other commodity prices from turbulent trade negotiations with China, the federal government came up with the first of what would be two Market Facilitation Programs in 2018 and 2019, commonly called MFP.
The weather of 2019 brought challenges to much of the country. In the Northern Plains, it was wet weather that kept crops from being planted or from being harvested in a timely manner, but there were a variety of problems elsewhere. That resulted in the Wildfire and Hurricane Indemnity Program-Plus, or WHIP+, which provided payments to eligible producers who suffered eligible crop losses resulting from floods, snowstorms, tornadoes, and wildfires that occurred in 2018 and 2019.
Then, 2020 brought the coronavirus pandemic and resulting drops in prices. Livestock markets were hit especially hard when meat packing plants had to reduce processing capacity as employees became ill, but farmers of other commodities felt the pinch, too, particularly as normal food chains evolved and adapted. The government paid out more federal money as part of two Coronavirus Food Assistance Programs, commonly called CFAP1 and CFAP2, the second of which passed its final application deadline on Dec. 11.
“In recent years, we've really had the trifecta of challenges for our producers. We've had low prices. We’ve had tough weather, and we also had to negotiate these trade agreements. So all three of these things came together,” said Sen. John Hoeven, R-N.D., who serves on the Senate Ag Committee and chairs Senate Ag Appropriations.
The first MFP in 2018 sent more than $8 billion to farmers for a small number of commodities that had seen price drops due to retaliatory tariffs placed by China as a result of Trump’s trade war. The second MFP in 2019 paid out more than $14 billion for an expanded list of commodities. Congress provided $4.5 billion for WHIP+; some payments are still being processed. CFAP1 paid out more than $10 billion, with cattle, corn, milk, hogs and soybeans coming in as the top payment categories. Through Dec. 14, CFAP2 had paid out $12.4 billion to 839,689 applicants, with corn and cattle as the top payment categories, making up nearly half of the total.
All told, more than $50 billion of federal money has gone to farmers and ranchers since 2018 as part of ad hoc programs. By some estimates, around a third or more of farmer and rancher income in the past two years has come from federal government payments through MFP, WHIP+ and CFAP. It was welcome money for producers who were wondering how they were going to make due with substantially less income than had been expected.
Bill Northey, U.S. Department of Agriculture undersecretary of agriculture for farm production and conservation, said the CFAP programs, in particular, were critical in keeping farmers and the markets afloat during the pandemic.
“I mean, we had projections of dairy prices at $10 per hundredweight for the balance of the year,” he said. But the coronavirus assistance changed the tone of producers and helped solidify the markets. “I think it helped solidify a land market where there was nervousness. Dairy cow prices solidified and the feedlot prices, once the packers were back working the way they needed to, came back a little. So, I think the CFAP program was very, very important.”
Frerichs, 36, said “at least 25% of net income” on his family’s operations have come from the federal government in the past two years.
Mark Watne, president of North Dakota Farmers Union, thinks the federal payments may have staved off a repeat of a scenario that played out in the 1980s, when so many farmers had to sell out that the price for farmland decreased enough to stress the remaining farmers’ balance sheets.
“We haven't had to see it, because those payments made a difference, so that we're able to hopefully survive through it,” he said.
Though the federal infusion of funds was welcome — and in some cases necessary to save farms — farmers, agriculture groups and policy makers know such ad hoc programs aren’t something to count on.
“I think many of us producers knew that when those payments came we were going to put ‘em to work,” Frerichs said. “As we look further, when there was MFP-2, let alone the coronavirus (CFAP) payments, it’s something we are going to wonder, when are they going to stop? They won’t continue.”
Where the money went
Little surprise comes out of looking at state-by-state data on where the money went from the programs. Iowa, a top corn producing state, received more for corn than other commodities in the programs, while also bringing in quite a bit for cattle and hogs. In CFAP1, Wisconsin producers received more than $341 million for milk, compared to more than $524 million overall in the program for the state. Montana, North Dakota and South Dakota received more in the two rounds of CFAP for cattle than for any other category. Minnesota, with a diverse agricultural scene, received more for corn than any other category.
Applicants in the first CFAP received, on average, a little more than $16,000 a piece, nationwide. Applicants in the second program received nearly $15,000. The picture varies across the country, depending on the commodities raised in each state.
USDA has projected a 43% increase in net farm income in 2020 to just under $120 billion; $24 billion of that is tied to ad hoc government assistance.
“Whether it’s, you know, paycheck protection program or CFAP1 or CFAP2, those will just continue to accentuate what we believe will be very strong levels of farm profitability,” said Tim Koch, senior vice president of Farm Credit Services of America.
“We needed those payments, because we had trade disruptions that decreased the prices that farmers were receiving, so it was important to have an MFP,” Northey said. “We needed payments for coronavirus support because of the market that was taken away because of coronavirus uncertainty out there.”
Northey said CFAP2 was a more effective program than the first round of coronavirus aid, as payment calculations were made on a revenue basis and more commodities were covered. According to USDA data, far more producers applied for CFAP2 than its predecessor — 838,689 in CFAP2 as of Dec. 14 compared to 651,352 in CFAP1.
“We were also able, in CFAP2, to use information from (Risk Management Agency), the actual production history for a farmer for those crops like corn, soybeans, wheat, sorghum, others like that. And then combine that with the (Farm Service Agency) numbers that we already had from acreage reporting,” Northey said.
Les Shaw, of White Owl, S.D., agrees CFAP2 was a better, more helpful program than CFAP1 for cattle producers like him. The first CFAP mostly paid out money for people who were forced to sell early, not taking into account the market losses of people who didn’t sell. Payments were significantly higher for animals sold rather than held onto. The people who held onto livestock still had lower market values but also additional feed and maintenance costs.
“I still have most of my heifers from two years ago; we haven’t marketed them,” Shaw said. “When the market crashed, we didn’t market. So, when you didn’t market, you got penalized.”
South Dakota farmer eyes new era under Biden
Frerichs also points out a flaw of the MFP payments: The programs skewed some planting decisions when people were deciding whether they wanted to plant to qualify for MFP or take prevented planting insurance. Some farmers, especially in the Dakotas and Minnesota, pushed to plant more acres when agronomically it was unwise.
On their farm, Frerichs and his family took some prevented planting insurance on acres they couldn’t get planted in 2019.
“We did plant some corn later in 2019. It was late spring. We wanted to get in as much as possible. Even aside from those payments, we felt it was the right thing to do,” he said.
In the end, 2019 was a “horror of a year,” to get corn dried down, and large amounts of corn were left in the field, unharvested until 2020.
“I’m not blaming the payments, I’m not blaming anything else, it was just the fact of Mother Nature during those times,” Frerichs said.
He thinks farmers will tend to make the best agronomic decisions they can, but at the end of the day, they need to plant what will make money.
And whether there will be federal programs like MFP or CFAP in the future remains to be seen.
The future of federal money in ag
Speculation is growing that public support for farm assistance is dwindling and that taxpayers might not tolerate much more.
Congress, too, might be reluctant to fund such programs. Sen. Debbie Stabenow, D-Mich., the ranking member of the Senate Agriculture Committee, asked for a Government Accountability Office report on the Market Facilitation Programs, which she said in September found that regions were treated differently in MFP and that large farms were favored over small ones. Stabenow has indicated in interviews that she may not be on board with more ag assistance programs unless Congress gets more oversight.
Watne said people being unhappy with the programs in retrospect is not surprising.
“An ad hoc disaster program never does exactly what it should do. It generally throws a lot of money at a problem. And there's not time to get it distributed properly. So there's winners and losers,” he said.
Taxpayers want an adequate food supply, and the federal programs did succeed in keeping a large number of farmers operating, he said. Watne thinks it will be important going forward to make sure there are “proper limitations” on where such payments go and who gets them.
“The question is, is do we have the will to fix it? I mean, we could tie this to Social Security numbers, we could limit payments to a level that's a little more acceptable to the taxpayer and make this all work,” he said.
Hoeven said it’s important to keep in mind that agriculture tends to run in cycles: good times followed by tougher times, repeating regularly. He views the recent countercyclical programs as what was needed to get through the tough times and keep people in business.
“So it's really, I think, a program that's vitally important United States in terms of food security in terms of . . . our great system of agriculture and and all the jobs — 16 million jobs — but it really is ultimately cost effective, I think, because it's a countercyclical approach,” he said.
The hope of many is that such payments just won’t be necessary in 2021 or onward. The common refrains among farmers and farm groups are that they need “trade not aid” or that they want to get their money from the markets, not from the government.
With trade agreements kicking in and prices going back up, Hoeven thinks agriculture will be back to “relying on the market as much as possible and not needing these countercyclical programs as much.”
“It was vitally important. We provided this help and now we're starting to see some improvement in prices and getting back to what we want, which is raising animals and growing crops for the market,” he said. “And nobody does it better than our producers.”
Watne would like to see some of the money that has gone into ad hoc programs in recent years be written into future farm bills, by way of higher reference prices or more money in existing safety net programs.
“We could raise prices, create demand with renewables and other products, and make the system work again. If we get the prices up, the government costs go down,” he said.
Frerichs, a former Democratic legislator in South Dakota, wishes the programs hadn’t been needed.
“More than anything, what was disappointing about why those payments had to happen,” he said. “It comes back to recklessness.”
And not everyone thinks the payments should have happened at all. Shaw said he’s glad younger producers received the help they needed to stay in the industry. But he said the assistance is a black eye on the industry and a reason for inflation.
“When you inject that government money into any agricultural industry, it makes shock waves through the farm and agribusiness sector for a couple years,” he said. “Everything goes up, feed goes up because of competition, and it causes inflation in the industry.”
However, the programs were a lifeline for farmers during the pandemic’s height, and Farm Credit isn’t factoring in government payments when working with clients on plans for 2021, Koch said. But the payments weren’t just a financial lifeline.
“They provided some emotional support that there was going to be (an) additional source of cash flow until some of the volatility found its way to sort out,” he said.