More PPP funding and aid for farmers: update

Chris

Barron: Welcome everybody to another episode of the Ag U-Pitch, and today we're going to have another discussion on the additional funding for the PPP program and a few other things. And we've got Paul Kneifer. How you doing today, Paul?

Paul

Neiffer: Doing good. We actually, well, we had sunshine about 10 minutes ago, now it's back to being partly cloudy, but we had some rain the other day, which for our area we needed. So I know you typically don't want to see too much rain during spring planting, but we got about a quarter inch and that just sort of took the dust off the ground. And so it definitely helped us out.

Chris

Barron: Yeah, yeah. There's been some scattered showers around, some areas have been able to keep running and some, some areas haven't. And I really didn't start out very good with the introduction. I was going to start out with the introduction as, you know, Clifton Allen Larson, also Iowa farmer and Um, you know, introduce you that way, I guess.

Paul

Neiffer: Yeah, and Washington farmer now too.

Chris

Barron: So yeah, yeah, so you're a big-time farmer. You're farming in Iowa and Washington State. You got a lot— long ways to go with the equipment from one state to the next.

Paul

Neiffer: Yeah, it just means I have twice the chance to lose money.

Chris

Barron: So yeah, well, you know, from a credibility standpoint, Paul, you know, like I've said in previous podcasts, you know, your knowledge and wisdom on on the tax side of things and keeping track of what's going on in DC and helping farmers with all this stuff. And then now that you're doing some, some additional farming, that you're actually doing the same thing we are, I think just adds to your credibility. And so that's, that's just a benefit to us as, as producers that get the opportunity to work with you.

Paul

Neiffer: So, yep, perfect.

Chris

Barron: So sounds good. Well, hey, let's get started. I want to start out by asking the question on the, on this PPP program. Paycheck Protection Program, there's been a lot of talk around the idea that, you know, whether or not farmers qualify or not. You hear different stories from producers that have said, well, you know, this lender or that lender has said producers don't qualify, or maybe a CPA here and there. What's the real story there? What— tell us.

Paul

Neiffer: Yeah, we have both good news and I'm gonna say perhaps bad news. But the good news is the Treasury Department came out yesterday and the day before, primarily yesterday, and specifically said that farmers qualify for the PPP loan. So that was good news. It's, it's on their frequently asked questions on their website. I think it's question number 33 and 34. So that was good news. And then also they came out yesterday, which they should have done within about 2 days of creating this program. They should have had this out there, but it's taken them 30 days almost. They actually came out and told everybody exactly how you're supposed to calculate this loan amount for Schedule F farmers, for partnerships, for S corporations, for C corporations. They provide the guidance as to exactly how you're supposed to calculate this.

Would have been nice on the first go-around, but certainly for the second go-around that'll start funding on Monday, this is helpful for farmers to know exactly what they qualify, the fact that they do qualify. Now, we, we still have to be careful because there's two certifications, key certifications you have to do on the application. One is that there's economic uncertainty, and I think everybody could say due to COVID there's economic uncertainty. The second certification is that you need this money to fund payroll between February 15th and June 30th. Now I'm going to say for dairy farmers, livestock producers, and so on, they could probably pretty easily say, yeah, we need this money because we're not sure what's going on and we're not sure, you know, exactly are we still going to be in business. You know, we certainly have dairy farmers going out of business right now.

Now for the typical row crop farmer that's involved in spring planting, has adequate funding, has a line of credit, Can they sign off on that certification that they really need this money? That's, that's the question. I think if you're getting a small loan, SBA and the banks probably are not going to care about that. But if you're getting a $500,000 or $1 million loan, you better be documenting very accurately why you need this money during that time period. So that's something that we're starting to stress now is the fact that you need to document that now not after the fact, so to speak.

Chris

Barron: Does that include like payment in kind, you know, if they've got producers that, that don't really have a quote-unquote payroll but do have the cost of, of—

Paul

Neiffer: you know, they didn't technically address that. I mean, I've heard some banks— I had a call with somebody a couple days ago that their bank would not allow the commodity wage or the payment in kind as part of payroll. Our reading of the CARES Act that that should be included. I don't think the, the frequently asked questions also said that if you provide a housing allowance or a car allowance, that that also qualifies as compensation. So that, that even provides more validity that a commodity wage should be qualified. Now, during that forgiveness period, that 8-week period We're supposed to get guidance on that hopefully by Monday. They were supposed to provide it within 30 days of the law being signed, and that 30-day period ends on Sunday, tomorrow. We're supposed to get guidance on this hopefully by Monday.

I'm not sure if that's going to happen, but it should come pretty soon. That'll give us a better idea whether commodity wages will qualify for forgiveness. Um, actually, probably what we should do, whether it's myself or somebody else, We probably should shoot off an email to the Treasury Department saying, hey, does commodity wages qualify? And they'll put that in their Q&A.

Chris

Barron: Right, that'd be, that'd be good to see. What, as far as those who have already applied and received funding, I know we've got a number of clients that have been in that boat, and now that some of the guidance has changed, Is there like a grandfather clause or something that says that, okay, well, they did it under those rules and now the new ones are doing under different rules? How is that going to be?

Paul

Neiffer: Yeah, yeah, that's, that's a mess. There is a provision that says, let's say that you finally determine I probably really didn't qualify for this loan. What the SBA said is if you pay it back by May 7th, so that's about 2 weeks from now, that we're automatically going to allow you to get out of jail free, so to speak. You know, there's not going to be any pushback by SBA if you pay the loan back by May 7th. You'll probably still have some interest accrual, but you know, as far as you got an application under the old rules and now they've changed the rules, you're not going to have to— if you got your loan, you don't have to go back and change your application or anything. You're still under the old rules, but again, those old rules you know, the economic uncertainty was one test.

The other test was, did you need this money in order to fund your operations between February 15th and June 30th? That's, that's the key requirement. So I think a lot of people viewed this as a way to get free money with no strings attached. Well, it's not necessarily free money, and there are strings attached. And the problem with the strings are we're finding out the strings after the fact. So that's, that's the rub on this is whatever they assumed at the beginning is sounding like maybe is no longer true. Also on the forgiveness side, it sounds like we're hearing definite strong hints, and we'll know this hopefully this week, that you have to spend at least 75% of those funds during that 8-week period on payroll costs. If you don't spend at least 75% on payroll costs, 100% of the loan is not forgiven.

And now for our farmers, typically they would be spending it on payroll costs, but if you're self-employed, uh, you're going to say, hey, I have no payroll, I'm a farmer, I don't have any payroll, how is that going to help me? Well, according to the FAQ that came out about 2 weeks ago, it sounds like 75% of your loan will be forgiven, you're still on the hook for the other 25% no matter what you spend it on. So that, that's probably good news for a Schedule F farmer, Schedule C taxpayer, but for other farmers that have a lot of payroll and they typically don't spend at least 75% on payroll during that time period, uh, probably 100% of that loan still going to be due Now it's 1% due in 2 years, but that probably wasn't what they were signing up for. So that's something that hopefully this week we get some clarity on.

Chris

Barron: Is there any additional guidance besides that? You know, it leads me to the question back a little bit to the, um, those who were approved and funded earlier on. Let's say that they don't have a line of credit, they don't have any money borrowed, and they're making payroll, but they're using it for payroll, is that questionable? I mean, there's gonna be a ton of questions, isn't there?

Paul

Neiffer: Yeah, I think we need the guidance this week to really know. If we get good guidance this week, we may be— you know, there may be certain farmers, certain other taxpayers that may say, hey, we better just pay this back by May 7th just so that we're not in trouble. Now, I may be reading too much into what we're hearing, but this is coming from very credible sources. So I just want to let everybody know that just because you got a loan and you're thinking this is free money and you have the economic wherewithal to provide for payroll, you got cash in the bank, you don't have any debt, yeah, this may not be a loan that you necessarily want to keep. You may want to pay it back before May 7th.

Chris

Barron: On the other hand, if the growers got it pretty large line of credit and yeah, yeah, then it's more warranted. Or obviously has some people that, you know, like in our farm operation, and I, you know, as a specific example, we've got a couple of our— my brother-in-law, you know, has preconditions and hasn't been at the farm as much, hardly at all. Yeah, that wasn't able to come to the farm. I mean, those are legit reasons.

Paul

Neiffer: Yep, exactly. Or, you know, you got your vegetable growers, I mean, they're having to plow under their crops, but they still want to make sure they have their people hired. You know, they're, they're a perfect candidate for PPP loan. The dairy guys, the livestock guys that are going, what is going on, are we ever going to make any money here, but we want to keep our employees employed, right? You know, those, those are the ones that are slam dunk in my opinion. It's the row crop farmers, like in our area, we got wheat growers, they're in the middle of spring planting either spring wheat or some legumes. Their pricing has actually come up because of COVID Now once everybody is done stocking, you know, flour and so on, is pricing going to start dropping down? Don't know. So those, those have a little bit more of an issue with this.

Chris

Barron: Yeah, and it's kind of that way, like I said, the livestock. You've got pork producers that are aborting sows and in some areas unfortunately having to euthanize some pigs and do some things. That's going to really limit the amount of labor that's going to be needed for a period of time when you don't have bearing houses full and you don't have nurseries.

Paul

Neiffer: And it's going to— but you still want— but you likely would rather, if you have this loan, you'd rather keep the employee on because you don't want to have them go on unemployment, then you're not going to get the employee back, right? And, and part of the issue right now for a lot of those farm employers out there, unemployment pays a lot more than the farm does. Unemployment right now is equivalent of about $24 an hour. You know, there's not a lot of farm labor, typical farm labor, earning $24 an hour. Plus unemployment, you don't have to do any work. You know, so that's an issue that we're going to have, and that could become very acute for farm farmers across the U.S.

Chris

Barron: Yeah, um, so you've kind of covered the loan forgiveness portion and the guidance to this point, and we'll obviously probably have to follow up with additional conversation as this becomes more and more clear as time goes on. And so it's kind of a moving target. Let me ask you though, on the farm, the EIDL, the Economic Injury Disaster Loan, yeah, talk a little bit about that, and is there any application of that to farmers?

Paul

Neiffer: Yeah, so that was a loan that was also brought about because of the CARES Act, but specifically at that time the SBA had indicated that ag or farms didn't qualify. Now the, the funding of the additional funding of the PPP program, part of that provision specifically stated in the new law that farms qualify for the EIDL. Now the EIDL is a true loan, none of it is forgiven other than technically you can have up to $10,000 of it forgiven but it's based on $1,000 per employee. So I'm going to say that it's really just a true loan, and you have to provide information to the SBA. It's directly through the SBA. You have to prove your economic injury. So that's the title, Economic Injury. So if you're a dairy farmer, you can prove economic injury. If you're a livestock, a hog producer, a produce grower, you can prove economic injury.

But you're going to have to document that and prove what the amount is. And then that loan goes through the process with the SBA, and that can take a month. It can take 2 months. I've dealt with SBA loans for some of my clients. It can be a painful process. Plus this is a 3.75% interest rate, but the term is very favorable. It could be up to, you know, a long term. It can be 10, 20, 30 years. Typically not going to be 30 years for operations, but you know, it could be a 5 to 7 year loan, I would guess. But, you know, that's, that's a true loan. It's not forgiveness. It's just designed to get you through what, what you need. So that's something that I think a lot of the farmers that took out the PPP loan may say, hey, really what we should be doing is, is doing an EIDL because of our injury to us.

Now, row crop farmer with prices going down, you know, crop insurance likely for a lot of those farmers is going to kick in and spare them that quote injury. But on the livestock side, a lot of livestock operators don't have quote crop insurance. You know, dairy might have the dairy margin program, you know, but certainly the hog side and the cattle side and some of the other livestock producers don't have that safety net.

Chris

Barron: So if you're a, if you're a dairy operation that qualified for the PPP the first go-around, or, or any operation for that matter, I guess, and feel like you have, you qualify for the Economic Injury Disaster Loan, can you do both?

Paul

Neiffer: Yes, you can do both. Okay. Yeah, so, and really the EIDL is more for that long term. Remember, the PPP was designed to keep employment through June 30th. The EIDL is allowing, you know, more of a long-term horizon. Hey, this COVID is going to affect us for the next 6 to 9 months. We need some additional capital to get us through that 9-month period, not through June 30th.

Chris

Barron: Okay, we're going to have one other little topic for you here at the end, but before I go to that, is there any questions or anything I haven't asked you about as far as this new round of funding that comes under this PPP?

Paul

Neiffer: I think we've covered it. I think you're right. I think once we get the loan forgiveness details from the SBA or from Treasury, we'll certainly have another call, but I think we've covered everything for now.

Chris

Barron: Okay, last question, and I know you've done some research on this, is the PLC specifically for corn looking like, or there's been some discussion about whether or not we might see a payment on PLC for corn for the 2019 crop. Obviously it looks like that, that could be a really viable option for the 2020 crop. But talk a little bit about what, what you've seen there.

Paul

Neiffer: Yeah, so on the '19 crop, remember the marketing year started September 1st, so it goes from September 1st through August 31st of 2020. We've already sold, according to USDA, we've already sold 60% of the corn crop approximately. And right now, if you looked at Ag Manager, which is done by Kansas State University, they update it monthly. I just looked at the, the latest report yesterday. Right now they're estimating that the MYA price for corn will be $3.71 for the '19 crop. The reference price is $3.70, so right now there is absolutely no PLC payment on corn. Now they're projecting that the average corn price for like April, May, June, July, August will be in that $3.40, $3.50, $3.30 range. If we get a, a drop down into that $3.10 to $3.20 range, I updated the MYA price based on around a $3.20 price, and we're looking at about a 14-cent payment per bushel.

So if you got 200 bushel proven yield, you know, 200 times 14 cents is $28. It's not going to be $80 or $90, but it could be, you know, $20 or $30 or $40. Now, if corn really drops through the floor and we're into that, you know, high 2s, then yes, it would be a bigger payment. But I, I don't think corn's going to drop that low, but I'm not an expert on that. But it would have to drop probably in that $3 or lower range before we'd ever get a $50 an acre payment.

Chris

Barron: Okay, well, that's good to know. And again, I think that's a topic we'll stay in touch with you on as that develops as well, because that's, that's something that a lot of the, you know, with all the issues with ethanol and things and the volatility and the pressure on, on the corn market right now, it's probably something we should keep an eye on.

Paul

Neiffer: Yeah, and we got to remember a lot of the ethanol production goes out the back end in the form of DDGs, but with hogs numbers going down and cattle numbers, you know, right now cattle producers are trying not to fatten their cattle because they're too fat to begin with. So, you know, they're probably cutting back the rations. That's going to cut back the need for DDGs. Now China is a wild card. You know, we hear rumors that because of these low prices, they really want to stockpile, you know, corn and beans and wheat and probably DDGs. So that could help, but Again, for us to get a more than $50 an acre payment for the typical Midwest corn grower, we're going to need corn prices below $3, and I don't think we really want prices below $3 just to get a $50 an acre, you know, corn PLC payment.

Chris

Barron: Yeah, at least not for an extended period of time.

Paul

Neiffer: No, no, no. Maybe we want it below $3 in the month of October when we have discovery for crop insurance payments, but that's about the only time we want it.

Chris

Barron: Yeah, yeah, there's going to be a lot of things I think producers are going to need to watch real carefully during this growing season as to additional expenditures on the crop and whether or not it makes sense based on, you know, what the value of the crop is and where the insurance level's at. Those are all things we'll kind of watch and talk about as we go forward too.

Paul

Neiffer: Yeah, as long as you still meet what I call the prudent man rule, you just can't put nothing on, you know. Exactly. Yeah, you still got to try to grow crops.

Chris

Barron: So yeah.

Paul

Neiffer: Exactly. That's within reason. Yep, you bet.

Chris

Barron: Okay, anything else they didn't ask on this call before I think—

Paul

Neiffer: I think we covered quite a bit. And believe me, I'm pretty sure this won't be the last time that we have a call on this subject.

Chris

Barron: Yeah, this is a moving target. We just want to make sure we get good information and good perspective out to people. And if they have questions and we want to reach out to you again, can you, can you rattle off how people can get a hold of you if they have a specific question?

Paul

Neiffer: Yeah, there's about 3 ways. First, I would definitely recommend them to sign up for the blog, you know, farmcpatoday.com. I also post it on AgWeb, which is the Farm Journal website, but if you sign up directly on, on the blog, every time we do a blog post, it'll come to your email, and I will be doing a blog post for sure tomorrow afternoon that'll come out Monday morning. Secondly, my email is paul.neifer, so N-E-I-F-F as in Frank, E-R, at claconnect.com. And then they can also reach out to me via cell phone, which is 509-961-9739, or my direct line at work, which is 509-823-2920.

Chris

Barron: Awesome. Hey, Paul, thanks a lot for the conversation today, and we'll stay in touch, and we'll keep things updated as things develop.

Paul

Neiffer: Yeah, and hopefully we can start traveling again because I got to get back there and push some dirt around.

Chris

Barron: Yeah, you're going to get your crop planted, you better get back there.

Paul

Neiffer: Exactly, exactly.

Chris

Barron: Okay, well, thanks a lot, Paul. You bet, we'll talk to you soon. Thanks. Bye-bye. Thanks everybody for listening, and we appreciate it. And if you have any questions, like I said, give Paul a call or give myself a ring and we'll try to talk you through some things and think through stuff. And again, thanks for listening. We'll catch you next time on the Agri-Pitch.