CFAP 2.0: Details are finally here

Paul

Neiffer: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one. Full count, here comes the play at the plate, and it's the Ag View Pitch!

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and the long-awaited, great anticipation for CFAP 2.0 is finally here, and we've got the person in the know with us today. Paul Knefer, a principal with Clifton-Larson Allen. Paul, how's it going today?

Paul

Neiffer: It's going pretty good, although we got still a fair amount of smoke out here. I think maybe some of it's headed your way or gotten there already, but yeah, I can tell you on Saturday our air index was about a 460, which 500 is super hazardous, so we were definitely suffering, but it's cleared up some. Although the sun right now is just sort of a red-orange ball in the sky. So, you know, it's been an interesting week, week and a half so far.

Chris

Barron: Wow. You guys wear a mask for COVID, and then when you go outside, you wear a mask for the smoke. That doesn't sound like much fun.

Paul

Neiffer: It's not much fun at all, but I got to admit, I've been playing a little golf and it hasn't affected me too much, so I'm not going to worry about it. Yeah.

Chris

Barron: Yeah. Well, we got to figure out how to cope, don't we?

Paul

Neiffer: Yep, exactly.

Chris

Barron: Yeah. So, all right. Well, hey, let's get rolling here. There's been a lot of anticipation since Sonny Perdue kind of made an announcement a couple of weeks ago that, you know, CFAP 2.0 was coming, working on it. Finally, we have some details on the program. And so why don't you take a minute and just kind of introduce the basic concept behind this? And then kind of, um, then I'll probably have you run through each of the commodities, and I've got some specific questions for you. So I'm going to be quiet for a minute and let you kind of go ahead and give us a little bit of an introduction to CFAP 2.0.

Paul

Neiffer: Yeah, and what they've done this time, there's sort of 3 different segments, I'm going to call it. On the row crop side, you're going to be paid based on your APH in most cases, and or a flat rate, and we'll sort of go through those details. And then on the livestock side, you're actually going to be paid based on your inventory, your highest inventory. And milk is based on production. And then everything else is sort of based on— I shouldn't say everything else, but like the specialty crops, nuts and fruits, and, and some other items, floriculture and aquaculture and stuff that probably most of the listeners on here are not interested in, but they're actually going to get about a a revenue, or it's going to be based on about 10% of their revenue from 2019. So this should be a little bit easier to calculate. We're not going to have those issues with hedge grain.

You know, remember on CFAP 1, if you had hedged your grain or priced your grain, you got no payment. That doesn't apply here. It's just simply based on your APH times a certain rate. So that's, that's sort of the key thing that's going to happen. Now on the row crop, you want me to start with the row crop side?

Chris

Barron: Yeah, why don't you, you know, go through, you know, corn, soy, wheat, and then kind of cruise through them, kind of explain a little bit about them, and then we'll get into some more details.

Paul

Neiffer: Okay, so on the corn side, or let's back up a second. What they've done, instead of giving you just a flat rate per bushel, which I think would have been easier, but I think they wanted to head off people saying, well, how did you calculate this number? So what they did is they provided what they called the, the marketing year percentage. So from the period of April 1st through August 31st, they counted the amount of grain or the amount of cotton or whatever it might be, the amount of grain that was typically sold during that time period, and then they multiplied it by a payment rate. So for like corn, they're saying that during that period of April 1st through August 31st, 40% of the corn for that '19 crop would have been sold, and then they applied a 58-cent per bushel payment rate. So you would take 58 cents times 40% times your APH.

Now if you don't have an APH, they're going to use that ARC County yield rate for 2019 times 85%. Now I think most of the listeners on the, on this podcast, they certainly have had APH, but if you didn't have APH, you're not out of luck. You're still going to at least get 85% of the ARC, which if your yield is low, that actually is going to benefit you. If your yield is high, that's going to penalize you. So, but in the long run, it'll probably even out. Now over on the soybean side, it's 54% of the soybeans are sold during that time period, and they still use the same rate, 58 cents per bushel. Don't ask me why those are exactly the same, but that's what they came up with. And then on wheat, which are the probably the 3 biggest crops that we're talking about, 73% of the wheat crop was sold.

Now that's a combination of 2019 crop being sold in April and May, and then 2020 crop was being sold in June, July, and August. A lot of wheat gets sold right at the time of harvest. Now if we equate that to a per, per, a cents per bushel type payment, because the math is always going to be the same, corn is going to get 23 cents per bushel times your APH, soybeans are going to get 31 cents per bushel times your APH, and then wheat's going to get 39 cents, uh, per APH. Now for barley, it's 34 cents, and for sorghum, it's 31 cents. So that gives you an idea the, the type of payment rates per bushel that we're talking about. Now it's not tied to your production, it's simply tied to your APH. So the only thing that really is tied to production, if you had prevent planted acres, you're not going to get anything on that.

It's basically going to be your reported, your planted reported acres, so to speak. The numbers you turned into either FSA or to RMA.

Chris

Barron: So what about, you know, the people that did have PP this year, then they're not going to be able to collect on those prevent planted acres then?

Paul

Neiffer: Right, so they're not going to collect anything because what FSA is saying, you weren't penalized, you didn't have any crop, you didn't have anything. That, that's what they're saying. But yeah, this is only based on, on actual planted acres. So if you had a situation where 65% of your crop was not able to be planted because of prevent plant, you know, for CFAP number 2, you're going to be out of luck getting the payment on those acres. Now if we jump over to livestock, it's pretty straightforward. You know, CFAP number 1 had, you know, 6 or 7 different categories for cattle, and then you had pigs and hogs. This is pretty easy. If you have cattle, it's beef cattle, not dairy cattle, but beef cattle. You get $55 per head, but you don't get to count any breeding stock. Now if you have a heifer, replacement heifer, and she hasn't delivered a calf yet, that's not breeding stock.

That, you you get to count those. And I guess if you have a bull that hasn't been out in the pasture, you could probably count that one. I'm not sure on that. Now on hogs, it's $23 per, per head. Again, no breeding stock. And then lambs and sheep, it's $27. And then if we jump over to milk, you're going to take your actual milk production from April 1st through August 31st. You multiply that by $1.20 per hundredweight, and then you take that average production during that period You multiply that times 122 because that's the number of days between September 1st and the end of the year. You're also going to get $1.20 on that. And then for all the other weird— well, not weird crops, smaller crops, not weird crops, that's the wrong word to use. I apologize if you have any of these crops, but alfalfa hay, oats, peanuts, rice, sugar beets, mustard, oats.

I mean, there's a listing about 40 crops here— flax, rapeseed, sugarcane, sugar beets, triticale— and, you know, fair amount of those crops are growing out in our area. You're going to get a flat $15 per acre payment. There's not going to be anything based on APH. The only thing based on APH is barley, corn, cotton, sorghum, soybeans, sunflowers, and wheat, at least for right now.

Chris

Barron: Okay, and you— and what'd you say?

Paul

Neiffer: And then, like I said, I mentioned early on You have these, you know, these specialty crops. They're all based on, on, um, about 10% of your 2019 revenue is going to be your payment.

Chris

Barron: Okay.

Paul

Neiffer: And then they actually added in broilers and eggs this time. Broilers, you're going to get $1.01 per bird based on 75% of your 2019 production. And then on eggs, you're going to get 75% of your 2019 production times a rate based on whether you had shell eggs, liquid eggs, dried eggs, or frozen eggs. And then also tobacco is covered.

Chris

Barron: Okay, so I think that answers a lot of questions for a big broad span. A lot of our listeners primarily are corn, soybeans, wheat, and probably some of the other—

Paul

Neiffer: yep—

Chris

Barron: row crop commodities and some cotton. So let's back up for a minute and, and take some complicated government jargon that always comes out and simplify this a little bit and say, and say, okay, if, if a grower's APH is 200, walk us through that real quick.

Paul

Neiffer: Okay, so for corn, if the grower's APH is 200, you're going to take 200 times 40%, because what they're saying, of your 200 bushels on the nationwide basis, you would have sold 40% of your crop during that time period. So 40% of 200 is 80 bushels, and then on that 80 bushels that you have under that formula, you then multiply it by 58 cents, and if we just extrapolate it out for that 200 APH, you're going to get $46.40 per acre. Now I don't know if they round it to the nearest dollar or to the nearest cent, but you're going to get approximately $40 per acre. Now on the soybean side, you know, you're thinking, well, under MFP soybeans got paid a lot more than, than corn did. Well, this wasn't NMFP related, this was actually related to COVID, which had different structures there.

So in soybeans, you're going to take, let's say, 60 APH, you multiply that times 54% because what they're saying during that same time period for corn, you would have sold 54% of your crop of soybeans, only 40% of corn. So we take 60, 60 APH times 54% times 58 cents, and that ends up being about $19. It's $18.79, but I'll round it to $19.

Chris

Barron: Okay, so another way to simplify— and then fine, I'll go ahead.

Paul

Neiffer: Yes, and then finally, if you're a wheat grower and let's say your APH on wheat is 60 bushels, you'd multiply that times 73 cents or 73% times 54 cents, and that's approximately a $24 payment. It's $23 and change.

Chris

Barron: Okay, so We can go through those calculations another way if we simplify it even a little bit further, because I like simple and I think a lot of people listening like simple. On corn, what you're telling me then is essentially there's a 23-cent premium per bushel would be another way to calculate it, or on soybeans 31 cents, or on wheat 39 cents if you want to make it simple.

Paul

Neiffer: Right, right.

Chris

Barron: So you would take the 23 cents—

Paul

Neiffer: and it would have been nice if— right, and it would have been nice if on their table that they put on the internet, if they had done that extension, they could have just said, okay, here's— here's— because the reason, again, the reason they put the marketing year average there, I think they wanted to provide the guidance for the, for the viewers out there, hey, this is how much corn was sold during that time period, instead of not putting it out in a table they wanted to get out on a table, but they should have added one more column, a fourth column that says here's your payment per bushel. They just didn't do that.

Chris

Barron: Well, and it's understandable. The, the logic nonexistent is illogical, and so there'd be a lot of criticism, I think, without that.

Paul

Neiffer: So it does make sense. So, uh, well, FSA or USDA, they're going to get criticism anyway, so we know that already.

Chris

Barron: Right.

Paul

Neiffer: Yeah.

Chris

Barron: So, you know, one of the things that just gives me a question, I guess, a little bit is, you know, we've got some clients that are— have a fair amount of prevent plant in a few areas. I mean, there was a lot less of that this year, but I think I just— and maybe I'm just assuming this, but I think if I was one of those growers that had prevent plant and I was at a 50 or 60% of my acres didn't get planted I'm not sure I'd like this program very much.

Paul

Neiffer: Well, and let's go back to MFP. My memory, if my memory is correct, uh, same issue on 2018 crop where they finally ended up— no, on the 2019 crop, excuse me, on the 2019 crop they ended up granting a $15 per acre for that prevent plant as long as they planted it to a cover crop. I could see potentially them coming in and saying, okay, we might do that, because if we think about it, how many total acres of prevent plant was there? About 10 million acres? That sound about right? I think corn was about 6, and so let's say if it's 10 million times $15 per acre, you're only talking $150 million. This is a $14 billion program, CFAP II. So I don't think that would bust their budget. So possibly I could see that coming.

Chris

Barron: Okay. Another question for you, Paul, to talk about for a minute is explain the payment limitations and kind of what that looks like.

Paul

Neiffer: Yeah, so the payment limitation is the same as the first round. So it's $250,000 per person. And then over on the entity side, so if you're a Schedule F farmer, a sole proprietor, $250,000. Now if your spouse is included, then it would be twice that number. If you're a general partnership, not an LLC, not a corporation, but a general partnership, your payment limit's gonna be $250,000 per owner. And then they have the special carve-out just like they did on CFAP number 1, that if you're a corporation or an LLC, You can have up to 3 payment limits, so $750,000 in total, if you have at least 3 owners providing at least 400 hours of either active personal management or active personal labor or a combination of both. Now, if you're, if you're hanging your hat on active personal management, I already know that many FSA offices are going to require you to document those hours.

There's been some pushback, I know, by some of the FSA offices. So, and the nice thing about this, there was an issue under— well, under current FSA rules, let's say that you have an LLC and you have somebody that owns 70% of the LLC and somebody owns 30% of the LLC, and they would have qualified for a $500,000 payment. That payment would have been reduced because the one that has 70% can only collect $250,000. They actually said that entity is going to qualify for $500,000 or $750,000 based on the owners. Now, if the owners have other interests, other farming interests, that could reduce the payment. So they've actually increased the payment limit. Now, I can tell you for most row crop operations, you know, on an average of 40— okay, so let's take $750,000 divided by $40, that's almost 20,000 acres of corn.

I mean, there are some operations out there that, you know, are going to be that size, but that's going to be a pretty small operation, and likely those operations are going to be structured as a general partnership and they're not going to have a payment limit anyway. Mm-hmm. Other than the overall $250,000 per person. That's the max that you can get in your ownership as you as an individual, you can only be allocated You got 17 different entities, you add up all those entities, and the maximum that can be spread among all 17 entities is only $250,000.

Chris

Barron: Okay, so is there anything that I'm not asking or anything that you need to get out that we haven't discussed with, with reference to CFAP 2.0 that growers really hot and heavy need to know? Any idea on timelines on, on payout and that kind of stuff??

Paul

Neiffer: Well, they can sign up on Monday, starting Monday. There's supposed to be a calculator. Hopefully the calculator is a little bit better than the CPAP number 1. There will be a calculator that is available some— I don't know what time on Monday, but it's supposed to be available on Monday. The sign-up starts on Monday. It goes through— my memory is December 11th, although again with CPAP number 1, they extended that deadline at least once. So I could see them maybe extending the deadline for this one. This did not have all the angst that was with CPAP number 1 as far as the, you know, the hedging, the unpriced grain, all that fiasco, the unpriced hogs. This is pretty straightforward. Either you had the— either livestock, either you had it on hand, your milk, it's based on production, your corn's based on production sort of, but you don't have to prove production.

You've already proved your APH, and then you've already reported your acres. So FSA really is going to be able to calculate a lot of this stuff anyway. So I have a feeling they may already have a lot of this stuff already calculated in their system.

Chris

Barron: Okay, so to make it simple again, to just, uh, just to reevaluate or restate it simple.

Paul

Neiffer: Yeah, the KISS method.

Chris

Barron: Yeah, exactly. Corn 23 cents times APH, soybeans 31 cents times APH, wheat 39 cents times APH, correct?

Paul

Neiffer: Right. And then if you have corn— I mean, if you have barley, it's 34 cents, and you have sorghum, it's 31 cents.

Chris

Barron: Okay, again, anything else I didn't bring up?

Paul

Neiffer: No, I think, uh, and I did do two postings on the blog today. I— the first posting, and that's at farmcpatoday.com. The first posting was on a sort of a summary of everything we just talked about, and then the second posting was, uh, it was a little confusing when you looked at the website on cattle and hogs. They were talking, you take your number of head and then you multiply it by a rate, and then you multiply it by the number of payment limits you had. So I had one reader ask me, well, if I'm an owner, just one person, and I have 1,000 head, I get paid on that 1,000 head. But if I got my competitor down the road that's got 6 people, are they going to be paid based on 6,000 head even though they only have 1,000 head?

Well, if you dig into the rules that were provided on the Federal Register, not on the website, but on the Federal Register, they cap it at the a maximum of— on cattle, it's a maximum of 4,546 head times your payment limits, but it can't exceed the number of cattle you had on hand. And then on hogs, it's the same thing. It's the number of hogs on hand or 13,638 times the number of payment limits you have. So a little, a little nuance there that they could have done a better job of putting that on, on the website. It's in their instructions for the, you know, for the FSA offices on how to do it and so on.

Chris

Barron: Okay, awesome. Hey, one other quick question I just thought of as well there. Is this considered, you know, we talked about, you know, CFAP 1 and some of these other things, they were obviously more geared towards the '19 crop. Is this then considered now moving forward formally 2020?

Paul

Neiffer: Payment? I, it's, I would say it's more formally 2020 because they're using 2020 APH. They're basing it on what was marketed during that time period, but again, that's still most of the marketing during that time period was '19 crop because remember corn as of August 31st, there's very little corn, especially in the Corn Belt states, has been harvested. So it's sort of a combination of both. We know dairy is definitely based on 2020. Hogs and cattle are based on 2020. The broilers and eggs are based on 2019. And then everything else is based on 2019. But I think they did that just because it was easier to do a calculation. Mm-hmm. It would have been much more difficult for them to say, hey, you need to calculate between this date and this date, whereas it's much easier we know what your number is for 2019 in most cases.

Chris

Barron: Yeah, from an accounting perspective, what we tend to always do with our clients, and you can correct me if I'm wrong since you're the CPA here, but money received in the given fiscal year is typically what we put on Profit Manager as part of the revenue for that given year, even if it's money that was paid because of the prior year, but the money was received in that given year because you really don't know you got it till you got it. So we add it up at that point. We take those dollars and cents, kind of like we're talking the 23 cents times 200, you know, it's 23 cents a bushel basically is what it is. You know, it's what your, what your per unit revenue in aid is added to your marketing price gives you your final market price. And that's kind of how we try to do that. Is there any, any criticism on that or any, any different way of looking at that than how I just described?

Paul

Neiffer: No, that's appropriate. So CFAP number 2 is 23 cents per bushel. CFAP number 1, who knows what it was, because it was purely based on what inventory that you didn't have price on hand as of January 15th. Some people with zero, other people, because they maybe didn't do a great job of marketing, might have gotten, you know, 30 cents a bushel. So you just don't know.

Chris

Barron: Right.

Paul

Neiffer: But that's probably a good way of looking at it.

Chris

Barron: Yeah. I just like to see everybody kind of figure out what the aid dollars are and what is that in terms of a price per bushel so that that factors into your decision making when it comes to making these marketing decisions.

Paul

Neiffer: So yeah, well, and right now we've certainly have had a decent rally, you know, not a great rally, but we've had a decent rally in corn, certainly a decent rally in soybeans. I mean, we're at what, a 2, 2.5-year high You add in on corn, you know, if you can lock in what, $3.60, maybe $3.70 depending what your basis is right now, plus 23 cents, you're getting pretty close to $4 a bushel, right? Plus perhaps a little bit extra on ARC or PLC, you know, coming up here next month. Yeah. So, you know, man, I think we are getting pretty close to that $4 per bushel for what I would say the typical farmer in the Midwest Corn Belt.

Chris

Barron: Right, right. Hey Paul, I think this was a great conversation. If people, again, just as a reminder, if people want to read your blog and stuff, hit that again real quick if you would.

Paul

Neiffer: Yeah, so the blog is at farmcpatoday.com, so it's all one word, farmcpatoday.com. I also typically then also post it to AgWeb, agweb.com, which is the Farm Journal site because I do write a column, Farm CPA for Top Producer. And, and if they want to give me a call, I'm very easy to reach via cell phone, 509-961-9739.

Chris

Barron: That's awesome, Paul. Thanks a lot for all you do for producers on the tax side of things and keeping track of everything with the FSA office. It's not simple, there's a lot of complexity in it, and you do a great job of kind of bringing this back down to earth so it's understandable. Thanks a lot.

Paul

Neiffer: No problem, thanks. I actually enjoy doing it, and now that I have a farm to farm, you know, I need to keep up on it myself anyway.

Chris

Barron: Well, that's right. I think you're going to have some corn in Iowa to harvest, so you need to, need to get back here. And probably in the next couple of weeks we're going to have things rolling, so look forward to seeing you soon.

Paul

Neiffer: That's going to be the plan.

Chris

Barron: Okay, sounds good. Hey Paul, thank you very much again for everything, and we'd also like to thank all of our listeners. If you have questions, please reach out to Paul, reach out to myself, and again, thanks everybody for listening to the Ag View Pitch, and we will catch you next time.