by Joe Janzen, Department of Agricultural and Consumer Economics, University of Illinois, Bryn Swearingen,
Economic Research Service, USDA and Jisang Yu, Department of Agricultural Economics. Kansas State University
In recently published research, we estimated the impact of the unprecedented surge in ad hoc farm payments from 2018 to 2020 on grain inventories held by US farmers. Under the Market Facilitation Program (MFP), US farmers received approximately 23 billion dollars during the 2018-19 and 2019-20 marketing years. While USDA designed the MFP to avoid distorting farmer planting and production decisions, these payments may still have affected farm decision making, in particular the decision to store production after harvest.
How can government payments affect the farm’s sell-versus-store decision? Government payments like the MFP increase the working capital farmers have available to fund their operations; more working capital means farmers may have less need to sell commodities or use costly debt to meet financial obligations. In this way, government payments lower the implicit, or opportunity cost of post-harvest storage.
Our research shows MFP payments increased grain storage by US farmers. However, the impact of MFP payments on the market-level inventories was modest. Even in the case of soybeans in December 2018, the market and quarter where we find the largest impact, we estimate US soybean stocks were only 226 million bushels or 6% higher than they would have been in the absence of MFP payments. Our results show the sizable government aid provided through MFP did impact outcomes relevant to commodity price levels, though any potential market distortion was likely small.
For farmers and other firms along the grain supply chain, our research points to an important link between working capital and grain marketing decisions. When evaluating the sell-versus-store decision after harvest, farms should estimate both physical storage costs related to handling, deterioration, and logistics of storage, and the opportunity cost of deferring revenue. This opportunity cost of foregone revenue is becoming more important in a period of higher capital costs as interest rates rise. (See: farmdoc daily, March 28, 2023)
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