We Have CFAP (Finally)

• May 19, 2020
• Paul Neiffer

The USDA finally announced the details on the Coronavirus Food Assistance Program (CFAP) today.  Many farmers will appreciate the assistance whereas other farmers will be locked out of any assistance since they grow the wrong crop.  

First, let’s review the payment and Adjusted Gross Income (AGI) limitations.  There is an overall $250,000 payment limit per entity/per person.  However, unlike normal payment limits, these limits have been expanded for limited liability entities such as corporations, LLC, LP, etc.  Normally, these entities would be subject to one payment limit, however, for each owner who spends at least 400 hours per year of either active labor or active management will qualify for one additional payment limit up to a maximum of 3 payment limits or $750,000.

Let’s look at an example:

A farming operation has 6 equal owners.  In one case, the entity is a general partnership and automatically qualify for $1.5 million in payments since a general partnership is not considered an entity.  However, in a second case, the entity is an LLC.  In this case, if at least three members each provide at least 400 hours of active labor or management, then the entity will qualify for $750,000.

Now for the AGI limitations.

The normal $900,000 limit per entity/per person applies, but similar to the MFP program you can have unlimited AGI as long as at least 75% of your income is from farming.  Let’s look at an example:

A farming LLC is eligible for $250,000 of payments.  It has two owners.  One works full-time for the LLC and the other is a doctor in town.  The AGI for the LLC is under $900,000 as is the AGI for the full-time owner.  The doctor’s AGI is over $900,000 and her income is less than 25% from farming.  In this case, the LLC will only be paid $125,000.

Payment qualifications are more complex than normal.  In some cases, there will be three separate payments, but you might only qualify for one or two and not all three.  We will summarize the payments by type and provide links to the pertinent sections of the CFAP website.

Also, you will receive 80% of your total allowed payment amount and the remainder 20% will be paid if sufficient funds are available.  Remaining funds will be allocated on a pro-rata basis if maximum funding is not available.

There is a link to about a 3 minute video showing how the USDA calculator will work to determine the amount of payments.

Non-specialty Crops – These crops are your typical commodity crop such as corn and soybeans.  There will be two separate payments.  One based on a CARES Act Payment Rate and one based on CCC Payment Rate.  For example, the CARES corn rate is 32 cents per bushel plus 35 cents per bushel for the CCC rate.  

However, your payment is based on the LOWER of (a) 50% of total 2019 production, or (b) total 2019 production that was not sold as of January 15, 2020.  If you had sold all of your production as of that date, you will not qualify for a payment on that particular crop.  There also does not appear to be any penalty for hedging of your crop unlike for dairy producers.

Let’s compare two farmers – Ed and Sue both harvest 100,000 bushels of corn.  As of January 15, Ed has on hand 65,000 bushels and Sue has on hand 20,000 bushels.  The total payment rate is 67 cents ($.32 + $.35).  Ed’s qualified bushels are the lesser of 50,000 or 65,000, therefore, his payment is $33,500.  Sue’s bushel limit is the lesser of 50,000 or 20,000, therefore her payment is $13,400.

This example is based on the actual wording from the www.farmers.gov/cfap/non-specialty “A single payment will be made based on 50 percent of a producer’s 2019 total production or the 2019 inventory as of January 15, 2020, whichever is smaller, multiplied by the commodity’s applicable payment rates.” 

We read it to mean it is the lesser of 50% of 2019 production or 100% of inventory on hand.  However, when you watch the video describing the calculation of corn payments, their calculator limits this to the lessor of 50% of 2019 production or 50% of inventory on hand.  If it was always going to be limited to 50% of inventory on hand it would always be less than (or equal to) 50% of production.  

However, this could really mean that 50% of the inventory on hand as of January 15, 2020 qualifies for the full CARES payment and 50% of the inventory on hand qualifies for the full CCC payment.  But in that case, you still would have to limit it to 50% of 2019 crop production first and that is not what the wording says.

The bottom line is based on the video of the calculator the payment amounts listed in our example above would be exactly 50% less for Sue and could be 50% less for Ed but not sure since his inventory is greater than 50% of 2019 production.

As you can guess, we need slightly better clarity on this calculation since the wording in the website is vague at best.

The list of commodities not qualifying for payment is longer than those that do and include rice, soft red winter wheat, hard red winter wheat, white wheat, flax, rye, peanuts, feed barley, ELS cotton, alfalfa, forage crops, hemp and tobacco.  USDA may reconsider each of these crops, other than hemp and tobacco, if credible evidence supports a more than 5% drop in price (or if enough political pressure is brought).

Note, for those farmers holding pre-2019 crops in storage will receive no payment for that inventory.

Livestock – Eligible livestock include cattle, hogs, and sheep.  Livestock not eligible include sheep more than two years old, eggs/layers, and other miscellaneous livestock.

Again, there is a payment based on CARES and a payment based on CCC Part 2.  The CARES Act payment will pay a rate per head times the number of head sold between January 15, 2020 and April 15, 2020.  The CCC rate will pay a rate per head times the highest inventory of those animals between April 16, 2020 and May 14, 2020.  Let’s look at an example:

Adrian raises hogs and pigs.  He sold 10,000 hogs between January 15 and April 15.  The rate for hogs over 120 pounds is $18 per head (note pigs under 120 pounds receive $28 per head).  Therefore Adrian’s CARES payment is $180,000.  His highest inventory of pigs between April 16 and May 14 is 7,500.  That payment rate is $17 per head (does not matter the animal weight) and the CCC Part 2 payment will be $127,500.  However, since Adrian is the only owner, the total payment is limited to $250,000.

Dairy – Payment will be based on certified production for the first quarter of 2020.  However, note, any milk production priced under a forward contract at any time during the first quarter is ineligible.  The CARES Act payment rate is $4.71 per hundred weight.  The CCC payment rate is $1.47 per hundred weight but after applying a national adjustment to each production’s production in the first quarter (not sure how this is calculated yet).  Here is an example:

Sunny Acres Dairy LLC is owned by 4 members.  Each member works for more than 400 hours in the dairy each year.  During the first quarter of 2020, the dairy produced 200,000 cwt.  Let’s assume a national adjustment rate of .9 is used.  The CARES payment is $942,000 and the CCC payment is $264,600 (200,000 times .9 times $1.47).  However, since there are at least three members working full-time the calculated total payment of $1,206,000 is limited to $750,000.

Specialty Crops – This is the most complicated part of CFAP.  There are three categories of payments.  Category 1 pays for crops that suffered a more than 5% price decline between January 15, and April 15, 2020.  Category 2 pays for crops that were shipped buy subsequently spoiled due to a lack of marketing channel.  Category 3 pays for crops that never left the farm and were unharvested (likely plowed under or spoiled).

Some of the specialty crops will qualify for all three.  Others will only qualify for category 2 and 3.  

For category one crops, it appears you may be required to provide records showing price received for the crop.  We are not sure if this price is then compared to a national or regional price to determine if the shipment qualifies for payment or not.  

For category two, the producer must obtain documentation such as a letter from the buyer explaining non-payment or other pertinent record.  Only crops that have met contractual obligations of delivering the crop will qualify.

Category three payments will require documentation of pounds of crops spoiled or plowed under.  If you are unable to provide adequate documentation you may not qualify for payment.

This could get messy real quick.

Let’s look at an example: Giant Broccoli Farms sold 200,000 pounds of broccoli during January 15 to April 15.  It qualifies for a Category 1 payment of $124,000 (200,000 times 62 cents per pound).  It also shipped 25,000 pounds of broccoli that was unable to be delivered due to marketing channel issues resulting in a payment of $12,250 (25,000 times 49 cents per pound).  Finally, it had to plow under 65,000 pounds of broccoli due to a lack of buyers.  This results in a payment of $6,500 (65,000 times 10 cents per pound).  Total payments are $142,750 before any payment or AGI limits.

Wool – These payments are similar to the non-specialty crop payments. Both the CARES Act and CCC payment is based on the lessor of (a) 50% of 2019 production or (b) inventory on hand as of January 15, 2020.  Payment rates range from 75 cents for non-graded, greasy wool to $1.49 per pound for graded clean wool.

Signup starts May 26 and ends August 28.  Signup will likely be done using Zoom or via phone, fax, or email.  

Producers who had not participated in a farm program before still qualify but they will have additional paperwork to fill out.

The Phase 4 relief package will likely have additional funding for Ag, however, that is not certain and this is what we have for now.  We will keep you posted.

 

 

 

 

 

 

 

 

 

, COVID-19 regulatory and tax updates | 8 Comments »