Tuesday May 26 marked the first day of signup for the Coronavirus Food Assistance Program (CFAP), the direct payments for producers funded by Congress and implemented by the U.S. Department of Agriculture. For grain farmers, it is pretty straight forward, but there’s been some questions regarding how forward priced and hedged grain will be counted on inventory levels.
With the official signup underway from May 26 until Aug. 28, 2020, the Farm Service Agency launched a CFAP Payment Calculator to help producers estimate their payments anticipated from the program. This Excel workbook allows producers to input information specific to their operation to determine estimated payments and populate the application form.
David Schemm, executive director of the Kansas FSA state office, said because USDA is retaining 20% of the total $16.5 billion in CFAP funds, he doesn’t anticipate funding running out for the program. “It’s not necessary to run into offices to sign up for fear of funding running out,” Schemm said.
However, the sooner producers sign up, the sooner checks will be issued. Once forms are filled out, checks could be in the mail as soon as one week.
Most row-crop farmers are eligible for CFAP payments if they can demonstrate that they suffered at least a 5% price loss as a result of the COVID-19 pandemic. This includes barley, corn, soybeans, cotton, oats and wheat. For a complete list of all row crops eligible for CFAP relief, click here.
The payment rate for corn is 32 cents for the CARES Act and 35 cents for the CCC rate. Soybeans offers a rate of 45 cents and 50 cents, respectively. Durum wheat would receive a rate of 19 cents for the CARES Act and 20 cents for CCC, and hard red spring wheat is at 18 cents and 20 cents, respectively.
Producers will be paid based on inventory subject to price risk held as of Jan. 15, 2020. A payment will be made based 50% of a producer’s 2019 total production or the 2019 inventory as of Jan. 15, 2020, whichever is smaller, multiplied by the commodity’s applicable payment rates.
Producers must provide the following information for CFAP:
- Total 2019 production for the commodity that suffered a 5% or greater price decline, and
- Total 2019 production that was not sold as of Jan. 15, 2020.
Northey said producers will self-certify their inventory on Jan. 15 and will receive payments on 50% of the 2019 production levels for that crop. For instance, if a grower produced 100,000 bu. of corn in 2019 and had 75,000 bu. left as of Jan. 15, he or she would be eligible for payments on 50,000 bu. However, if only 25,000 bu. were in inventory, he or she would be eligible for the payment on only 25,000 bu.
Unpriced inventory is defined as “any production that is not subject to an agreed-upon price in the future through a forward contract, agreement or similar binding agreement.”
Todd Barrows, Kansas FSA state program specialist, explained that if inventory on hand is still subject to price risk, then it is counted as inventory. This could include basis contracts and hedge-to-arrive contracts that still pose price risk to the producer. Sileage is also included and would be converted to a grain basis for payments, he added.
National Association of Wheat Growers (NAWG) president and Cass City, Mich., wheat farmer Dave Milligan said it is unfortunate that the program fails to take into consideration all six classes of wheat.
“USDA’s methodology behind CFAP neglects to incorporate price drops during the January-to-April time frame, when wheat farmers were marketing their crop or that local cash prices that farmers were receiving were less than futures prices in many areas of the country. As a result, most wheat growers won’t qualify for CFAP despite being impacted,” he said.
Applications for CFAP funding will be made through form AD-3114. This form and other electronic aids are available in the “CFAP Application” section of CFAP website maintained by FSA (https://www.farmers.gov/cfap).
Each producer will make only one AD-3114 application for all eligible crops and livestock. “Most likely, farmers will not be able to amend AD-3114 once submitted. As a result, having a complete and accurate AD-3114 when making the submission is important. Missing information on an application could result in a lower payment. Conversely, over-inflating inventories could result in penalties,” said University of Illinois economists in a farmdoc Daily overview.
Gary Schnitkey, Nick Paulson and Jonathan Coppess from the University of Illinois farmdoc team provided updates May 26 on the CFAP program. To view the hour-long discussion, click here. They’ve also put together an overview of the application process available here.
Barrows and Schemm both answered questions during a May 22 Webinar hosted with Kansas State University about the program. To find a replay of the video, click here.
The Kansas State team also compiled a list of questions submitted during the discussion. Here are a few questions that producers may find interest in.
Q: Does contracted grain need to be excluded from inventory in calculating bushels?
A: Depends on when price was locked in. If priced prior to Jan. 15, grain is not eligible. If the producer maintained price risk on or after January 15, then grain would be eligible.
Q: What about HTA contracts?
A: HTA contracts establish the price per unit of measure so price is established all except basis. Eligibility is based on when the price per unit of measure is locked in/established.
Q: Does corn that had not yet been harvested on Jan 15th count as "inventory"?
A: No, this corn would not count as inventory until harvested.
Q: In computing adjusted gross income (AGI), is there any modification required to add back any part of the 100% depreciation deduction under Section 168(k)?
A: Section 179 depreciation may be deducted from AGI if not already claimed on your tax information.
Q: If spouse(wife) is a member of the LLC along with the Husband does that situation qualify as two owners for payment limitation?
A: If both the husband and wife can certify to providing at a minimum of 400 hours active personal labor and or management or combination of both then the LLC can qualify for a $500,000 payment limitation under CFAP.
Q: Does the CFAP payment limit combine with the other government program payments including ARC or PLC?
The payment limit is not related to ARC and PLC but has a separate payment limit as well as AGI.
Q: If you only priced out 25% of your 2019 production, are you only eligible to receive payments on 50% of your remaining inventory?
A: Yes, if you had 75% of your production still on hand and unpriced at Jan. 15, you would only be eligible to receive payments on 50% of your 2019 production levels.
USDA also offered an update on market contracts that are eligible for CFAP. Here is a quick look.