John Phipps: MFP Payments' Impact on Farmland Values

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U.S. farmers are currently receiving MFP payments for 2019, but should you bank on payments in 2020? What would that do to land values and land rent discussions? John Phipps explains in John's World. ( Farm Journal )

By now quite a few of us have received half of the proposed 2019 MFP payments – in my county the rate was $40/acre for that payment. This is not trivial, but it is hard to compare to unrealized or even imagined prices that might have occurred without the tariff actions. The timing is helpful for farmers squeezing the last drops from lines of credit, but it also could be messing with our heads now that rent negotiation season is in full swing.

For example, if we get the full payment, should we factor a similar payment into next year’s budget and rent bid? If we don’t, will it be because the trade war is concluded and prices are higher? Will Congress decide farm policy by CCC borrowing without any input from legislators has to stop? Most important of all, what will our competitors for rented land be thinking?

The audacious move is to assume another significant MFP boost to net farm income from the US Treasury in 2020, and add it onto our rent bid to grow our acres. But what if the lease is a multi-year contract?

Even with reasonably well-informed landowners it is hard to argue the MFP payment is not enough to make up for price drops from lower exports when prices really haven’t dropped that much due to production problems. Should this crop be close to the size being predicted and not a catastrophe for most farmers, there will be some tough conversations and aggressive bidding, in my opinion. As bad as things are on many farms due to the historically difficult planting season, a few more weeks of above normal temperatures might mute some gloomsayers and evaporate the NASS conspiracy theories by revealing a bigger crop than many expect.

This adds another risk factor – timing. Depending on your price outlook it might be better to get the contract agreed to soon as opposed to waiting for possibly worse financial conditions to engender landowner sympathy.

The increasing transparency in land rents and the constant pressure from large, low-margin operators can ruin some of the best sleeping weather of the year. And remember when the rent negotiations are done, if you’re not sure whether it was a win or a loss, you probably did the best you could.

 

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