We have CFAP (finally): nuts and bolts of the Coronavirus Food Assistance Program

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and today we're going to have a little conversation around the Coronavirus Food Assistance Program, better known as CFAP. Paul Niefer, my guest today, how are you?

Paul

Neiffer: Doing good. We're out here in the beautiful northwest of America and it's raining pretty hard. We're supposed to get about an inch, inch and a half today, which for us is a pretty good rain, and That'll pretty well set the wheat crop and our pea crop out here. So I think everybody's pretty happy.

Chris

Barron: Awesome. Yeah, it's always nice to have some welcome weather, whether it's rain, sunshine, heat, or whatever you need. Some of the guys are not getting exactly what they want, some too much, some not enough.

Paul

Neiffer: Right.

Chris

Barron: Yeah, that kind of sounds a little bit like this program we've got, right?

Paul

Neiffer: I'm gonna get a little more than they want.

Chris

Barron: Some are gonna get what they want.

Paul

Neiffer: And, uh, I, I think there's gonna be a lot of people that don't get anything or don't get what they want. So that's at least— that's my initial, uh, uh, review of the program. I think I spent about 2 hours, 2 and a half hours yesterday writing a blog post, and then I actually had a conversation with Chip Clory on it and, uh, had to go back and rewrite my blog post because the— well, language on the website wasn't very clear. And then I determined based on their frequently asked question that I hadn't seen yesterday, that I saw this morning, that it is what I thought it was, which means it's half of what I originally wrote. So that was even worse news.

Chris

Barron: Yeah, well, and that's, that's the thing. I've gone through your blog post a couple times here now, and as I told you offline, we first started the conversation here this morning, you did a great job of writing pretty, pretty accurately a confusing program. So having said that, do you want to kind of start and go through to the best of your ability to kind of explain what this is? And then I've obviously got some questions for you, some quote-unquote farmer questions here as to how we're going to calculate some of this.

Paul

Neiffer: Yeah, and partly why it was a little bit confusing, and they could have really made this much clearer if they just provided some examples. You know, sometimes they'll do wording and, and you're missing one word that really messes everything up. And, and if they just have an example as to show how, how the thing is calculated, that would have cleared this all up. But essentially, on our— there's 5 different segments of the program payments. There's the non-specialty crops, which are probably most of the viewers on this, or the attendees on this podcast, are going to be applicable for. That's corn, canola, barley, upland cotton, millet, oats, sorghum, soybeans, sunflowers, and Durham wheat, and then hard red spring wheat. Now you notice I didn't mention any winter wheat.

So if you have hard red winter wheat, soft red, or out in our area soft white, there are no payments for any wheat in those categories. Rice, some feed barley, and some other items are not allowed any type of a payment. So there's the non-specialty crops, and what's also confusing, there's two separate payments. There's what's called the CARES Act payment, which the CARES Act is what provided the PPP program for us, and then there's an amount of payment applicable to the Commodity Credit Corporation. So they had to show them separately. Now, to some degree, maybe they could have, could have just combined it and, and said, okay, behind the scenes, this is how it's calculated. Um, so you're gonna— if you're looking at like corn under the CARES Act, you're going to get a 32-cent-per-bushel payment. Under the CCC Act, you're going to get a 35-cent. Now you add it together, it's 67 cents.

But that isn't how it's really calculated. You take an inventory item, you multiply it by 32 cents, and then you take an inventory item and multiply it by 35 cents, and you add the total together. And then on soybeans, the CARES Act pays 45 cents, the CCC pays 50 cents. So that's, uh, so as you can see, the CCC payment in most cases is a teeny bit higher than the payment for the CARES Act. Now that's on the non-specialty crops. There is specialty crops, that's all your fruits, vegetables, and nuts. Uh, yeah, I'm not going to spend really any time on that. If somebody needs some information on that, they can go to the website or reach out to me or take a look at the blog post I did. There's a little bit on wool. On the livestock side, which is probably quite a few of your listeners out there have some livestock, pigs cattle and sheep, they're all going to get a pretty good size payment.

Hogs are going to get about, if they're under, if you have a pig under 120 pounds, you're going to get a $45 per head payment. If you have hogs that are over that weight, you're going to get about a $35 payment. And then on your cattle side, if you have fed cattle, you're going to get about $247 per head. So that's, that's pretty good size payment. Then lambs, about a $40 payment. So, you know, the livestock side certainly is getting, I think, the majority of the payment under this program. And then on the milk side, the dairy, which I think you probably have some dairy listeners out there, they're going to get based on their production, their certified production for the first quarter, they're going to receive a payment of about, it's $4.71 on on their production. And then there's a second part that has a national adjustment.

Now they didn't, I didn't see anything in their site showing what that national adjustment is, but there's another $1.47 per hundredweight. So, so that sort of recaps the, the actual programs. Now once you calculate your final amount, you're going to get paid 80% up front And then the remaining 20% may get paid in total, it may not get paid at all, or it may be some type of allocation on a pro rata basis depending on how much funding is available after that 80% goes out.

Chris

Barron: Okay, so you talked a little bit about the need for an example. Um, run us through, if you would, kind of a basic example of a corn situation, say for example.

Paul

Neiffer: So let's look at a corn situation. So the payment is going to be made, it's the lesser of 50% of your production for the previous, for 2019, or 50% of your inventory on hand as of January 15th of 2020. So Let's say that we have a producer that produces 100,000 bushels of corn, and then as of January 15th, uh, let's go with two different examples. Let's assume that they have 60,000 bushels, or let's make it 75,000 bushels on hand as of January 15th. So they've produced 100,000 bushels, they have 75,000 bushels on hand. 50% of their production is 50,000, so they're going to be limited to 50,000. And then it's— now this is where it gets confusing for me, right? So is it 50% of $75,000? That would be $37,500. Or is it 50% of $50,000? And I think it's 50% of $50,000 is how they're calculating. So in that case, you're going to get 25,000 bushels.

I'm putting in the calculator right now, 25,000 bushels. Times 0.32, so your CARES payment is $8,000, and then 25,000 bushels times 0.35 is $8,750. So that producer is going to get $16,750 of payments. Now if the producer only has 25,000 bushels on hand, that means in that case they're going to be limited 50% of that number, which is 12,500, which is exactly one half of what I just said, so about an $8,000 payment. Now 100,000 bushels, that's what about a 500 acres, that sound right? 100,000 divided by, divided by, uh, 500 is 200 bushels per acre. Yeah, so if you multiply that, if you had a 10,000, uh, acre, no, a 5,000 acre producer, uh, roughly somewhere in that $80,000 to $160,000, uh, payment range.

Chris

Barron: Mm-hmm. For corn. So, so one of the challenges with that, um, among a few others, but I'll start with one, is that you have producers out there, and we have a fair amount of clients in this boat, that have done a pretty good job of marketing so far and are not sitting on a very large amount of grain, which is good. So they've done a good job in that respect. But as far as the payment's concerned, it's purely on physical bushels. It has nothing to do with anything on Board of Trade. So for example, if the grower sold some bushels, re-owned something, that's not, that's not—

Paul

Neiffer: they're going to be out of luck. Yeah, the whole genesis of the payment is they're trying to reimburse the farmer for marketing losses due to inventory that was on hand as of the date that coronavirus started. So if you had already sold all of your inventory, you had no damage because you had no inventory available to sell. Now the damage is, you know, what is it doing to the 2020 crop because of the coronavirus damage related to ethanol, you know, that type of stuff. You know, that'll have to be a separate program, whether that's part of Phase 4 or we have to wait till the fall and see what the damage really is after the pricing is really done.

For the 2020 crop, but then USDA is probably likely to say, hey, if pricing is really in the tank, and you and I have discussed this a little bit before, in the elected PLC, you know, PLC is designed to really reimburse the grower for that damage, and to some degree, unless you bump up against the payment limit, and it'll probably actually do a pretty good job of reimbursing you for that damage.

Chris

Barron: Right, so, uh, on this, on the soybean side of things, you want to do a quick scenario?

Paul

Neiffer: Yeah, let's do a quick, uh, so let's say that we had 500, uh, well, let's make it 1,000 acres of soybeans, 60 bushels, that would be 60,000 bushels. You tell me, Chris, I would say most farmers, what, market their soybeans quicker than they market their corn. They're willing to store corn. So as of January 15th, if you had 60,000 bushels of soybeans to start with, What would be the typical amount that you would have in inventory?

Chris

Barron: Maybe a third of that.

Paul

Neiffer: A third, so that's 20,000 bushels. So you're going to take 20,000, so you got 10,000 bushels because remember you take 50% of that number times essentially 95 cents, so you're going to get $9,500. Now if you're a 5,000, uh, if you had 5,000 acres of soybeans, you get $95,000. And I was telling you offline, I'm actually working up a little spreadsheet that sort of will compare MFP payments, Phase 2, from last year, from 2019, and compare it to what a typical producer might receive this year from CPAP and see what the differences are. I'm guessing that MFP would probably be a bigger item, but again, it would depending on— it would depend on inventory.

Chris

Barron: Okay, yeah, we had a good conversation with Steve Johnson from Iowa State on the podcast called Help Is On the Way, and this is similar to what his prediction was, but it's a little different as it is tied to bushels of inventory as opposed to a flat per acre payment, right? Which I think there was a lot of speculation that we would see something along those lines as opposed to a Compensation based on inventory. What other things should farmers be aware of as they think about this, look at it, and then talk a little bit about the sign-up as you're aware of it?

Paul

Neiffer: Yeah, I think we probably have covered sort of the key, how it's calculated and so on, assuming I'm correct. I'm pretty sure I'm correct. There is a little bit of a video that goes through their spreadsheet. I don't know why they didn't have the spreadsheet available, but I think they're going to make it available as of the sign-up date next Tuesday. So the 26th is when you start signing up. Over on the sign-up side, there is a little bit of good news there. You know, a lot of our producers out there, including yourself, they're either a corporation They're a limited liability company, an LLC. They might be a limited partnership. And historically on any of these farm programs, you were limited to one payment limit. So let's say you have a corporation, you have 5 owners, they all work in the corporation. You know, logically you would think, hey, you have 5 payment limits.

Well, that's not the reality. The reality is you have one payment limit. Well, this is a unique situation. They're actually granting you additional payment limits up to a max of 3. So again, in that farm corporation that's got 5 owners, if as long as at least 3 of them work at least 400 hours on average in a year, either active management or active labor, they're going to qualify for 3 payment limits, and each of the payment limits are $250,000. So that's, that's actually really good news for our larger entities that are farming, let's say, 5,000 10,000 acres that under the old rules they would have been capped at $250,000. Under the new rules they can have up to maybe $500,000 or $750,000 of payments. So, so that's really— that part was really good news.

And I think that was part of the behind-the-scenes negotiations with the USDA was, look, you know, if you're going to have a hard payment limit of $250,000 and you have larger farmers out there that really had substantial damage, you're going to put them out of business. And, and I think they were aware of that and, and wanted to provide some flexibility. So that part was good.

Chris

Barron: Well, especially the operations that are diversified with large crop entities in addition to livestock at the same time.

Paul

Neiffer: Exactly. And again, this isn't per— this isn't per type of crop or livestock or dairy. This is an overall $250,000, at least that's my understanding. There's one $250,000. So if you have a large dairy and you also have a large row crop operation and they're underneath one entity and you have a large loss, maybe you got a million-dollar loss and, and you got 4 owners, but you're— or 5 owners or 6 owners, you know, this is helpful because under the old program, you might have— you know, under the old rules, you might have incurred a $1 million loss but only got a $250,000 payment. At least under this, you're going to get a $750,000 payment. So that's good. The AGI changed too, right?

Chris

Barron: Mm-hmm.

Paul

Neiffer: AGI is just very similar to the— MFP, it's still $900,000, but as long as at least 75% of your AGI, your adjusted gross income, is from farming, then you qualify. Now caution, and I put that in the blog post, let's say that you have a corporation, it's owned by two brothers. One brother actively farms in the corporation, the other brother is a doctor in town., and the corporation obviously is 100% income is from farming. The, you know, the problem is actually my blog post, uh, got to be careful because if it's a C corporation, you know, this is where it gets a little tricky. It's probably a good discussion. So let's say it's a C corporation and it qualifies for $250,000 payment. The C corporation obviously is going to have 100% of income from farming. The problem is the one brother that works in the corporation, what is his income?

It's purely a salary from the corporation, and therefore if his AGI was over $900,000, that's the key, if his AGI was over $900,000, he wouldn't qualify, but since his AGI is under $900,000, he qualifies. But the doctor in town, his AGI, let's say, is $1.5 million, none of that qualifies. So in that case, instead of getting a $250,000 payment, they're going to be limited to $125,000. So the key is if you're under $900,000, there's no limit no matter what your income is. If you're over $900,000, at least 75% has to be from farming.

Chris

Barron: Gotcha. Okay, um, so to ask another question that you already went through, because there's probably people listening to this that are going to rewind and go back and listen to your example 2 or 3 times. Yeah, on the 50% and the CARES Act payment and the CCC payment, the good part of that is I think is you referenced a video, and I would recommend people go and look at that because it gives you a visual of at least what that spreadsheet is going to look like.

Paul

Neiffer: Yeah, and what I would suggest is when they start— because they do a corn example— and what I would suggest is right when they're done with the corn example, hit the pause on the video and then just do the calculation on the calculator, and you'll see how they arrive at the number.

Chris

Barron: Right, yeah, and that's, that's a key point, I think, because as you said, you know, you can rest assured they're going to have their way, their way is going to be right, and when the spreadsheet's there, you plug in your information, it's going to kick out what your payment is.

Paul

Neiffer: Yeah, exactly.

Chris

Barron: So, exactly. So, anything else that I haven't asked or that we haven't discussed that along, along this topic for now. I mean, it's probably something that maybe next Tuesday or even Monday, as people are thinking about it and getting ready to sign up, maybe we catch up here and refine.

Paul

Neiffer: Yeah, I think again, the blog post, you know, either— excuse me— on AgWeb, or if you go to our farmcpatoday.com, so farmcpatoday.com, you know, that's the blog that I started back in 2009. As you said, that was probably one of my longer blog posts I've done in a long time. I think it took me 2, 2.5 hours to actually write it up, and then I had to change it after talking with Chip. But I think it does a pretty good job of explaining. It provides links directly to the farmers.gov/cpap website. And again, there is a frequently asked question part of the website that I had missed this morning. Or I saw this morning. So it answers quite a few of the questions there.

Chris

Barron: Yeah, well, and I recommend anybody that's listening to this, you definitely want to go and look at the FarmCPA Today blog because, as you said, Paul, you, you did a great job of laying out how this, you know, looks and how to think through what the Coronavirus Food Assistance Program actually is and how it's structured. Now we'll get to find out on Tuesday how smooth the program works or doesn't work. And then, um, and then also a little of the fallout. I was noticing on Twitter last night, I was going through, and it looks like there's definitely some frustration out there, and there's going to be some people happy and some people not so happy with it.

Paul

Neiffer: Yeah, I, I think I think everybody assumed— no, I shouldn't say that. I think a lot of people assume, hey, I'm going to get a payment just because I'm a farmer. And the reality is, no, you're only going to get a payment if you had a crop that was affected by coronavirus and you had the crop in the bin. You know, if you had done a good job, like you said earlier in the blog, in the podcast, if you've done a good job of marketing and got rid of your crop timely and hedged it correctly, you really had no damage. Now the damage from coronavirus may show up on the pricing for 2020 crop, but this program wasn't designed for corn and soybean farmers for the 2020 crop. That's what, that's what PLC or ARC is going to take care of. This is designed to reimburse those farmers that had damage on the inventories they had on hand.

So if you, if you go through the logic, I think you have to agree with the logic. You may not like the logic, But you at least have to agree with the logic.

Chris

Barron: Well, and to your point, the 2020 crop is, is a ways away. I mean, we're looking at a futures market that is severely under pressure, and as Duane keeps saying, the prices are just awful, which is correct. Yep. But we're a ways away from having to price those bushels yet, and so hopefully we see some strength in that market. If we don't, this administration has proven time and time again that they're the farmer's friend and they're going to be there. Yeah, whether, whether you like how they go about it or how Trump talks about it, it's— I watched yesterday and I would recommend anybody that didn't watch Trump talk, whether you like him or not, it was an entertaining display of explanation from, from Trump as usual.

Paul

Neiffer: So yeah, yeah, I actually, uh, I, I, for some reason I woke up about 12:30 last night and I went out to to the living room to watch TV for a few minutes and they had some Late Show guy on and they were just showing a video of Trump and he kept saying, this is the best thing ever. Yeah, like 7 times or something. And it was pretty funny. So yeah, like to say, whether you agree with him or disagree with him, he is fairly entertaining at times.

Chris

Barron: Yeah, you got to take a lot of this stuff with a grain of salt. But the reality of it is, I think, I think we're going to be okay. We're, you know, we are getting some help. We are, this does illustrate that if they're standing up with us, the administration is, if we have a loss on the quote-unquote, as you said, Paul, the '19 crop, and it's clear that we need to understand that this is still yet for the '19 crop. We'll deal with the '20 crop when we get a little further into this year.

Paul

Neiffer: Again, if you're a livestock producer, there are major large payments you know, for the livestock producer, the dairy producer, uh, you know, those guys are, you know, they potentially are getting a $250,000, $500,000, $750,000 or more payment. You know, if you're structured as a general partnership and you get 10 partners, you qualify for $250,000 times 10. So each, right?

Chris

Barron: Yeah.

Paul

Neiffer: So, so I, I think, uh, they're the ones that really were damaged, at least in the initial go around now, things are starting to turn around a little bit potentially. Um, but they're the ones who are going to get a def— definitely a good size payment. And Phase 4, you know, if we have a Phase 4 of COVID relief, maybe there's some more for ag. You know, they're talking about bumping CCC up to $60 billion or whatever, then $68 billion. Um, and, and that would be all available, and that'll probably be a different program at that point anyway.

Chris

Barron: And some of that coincidentally possibly could come right in front of the election.

Paul

Neiffer: Yeah, it's surprising how that happened. Yeah, isn't that weird? So, and that is part of Trump's base, you know, that's, that's who he has to appease right now is the rural America, the farmers. So, uh, we'll see how that goes.

Chris

Barron: Yeah, for sure. So, well, Paul, any last thoughts or comments before we wrap up?

Paul

Neiffer: Yeah, I think I hope everybody's doing well out there, out in our area. Our county and the county next door has been very, very not affected by COVID. We've had one case in my county, and that was at the very beginning, and that was somebody that traveled to China. The county next door to me has had no cases. We seem to be opening up a fair amount, but you still got all the, you know, social distancing and wearing masks if you have to and so on. So I hope everybody out there is doing well.

Chris

Barron: Yeah, yeah, same here. We've been in Buchanan County, northeast Iowa. We've had not a lot of cases in our county, although Black Hawk County, our bordering county, which is where Tyson's is at, they've had a massive challenge over there.

Paul

Neiffer: And yeah, and I gotta admit, our— yeah, Walla Walla County, which is the county I grew up in, which is the county to the west of me, they have a Tyson plant there. They've had at least 2 3 deaths and they've probably had 100 or 200 cases of COVID So, you know, those— that definitely has been a little bit more problematic.

Chris

Barron: Yeah, yeah. Well, we'll get through it. We always seem to get through all kinds of difficult and challenging things as producers. So, yep, yep, again, again, to everybody, make sure you go online, take a look at the FarmCPA Today. Blog. Nice job on that. And again, Paul, thanks for your input as usual, and I'm sure we'll bug you again here probably first part of next week as people get close to where they'll be able to sign up on Tuesday.

Paul

Neiffer: Okay, thanks.

Chris

Barron: All right, yeah, thanks Paul, and thanks everybody for listening again to the Ag View Pitch, and we will catch you next time. Thanks.