June 03, 2020
The CARES Act was
passed by Congress to provide quick and direct economic assistance to Americas to combat the economic impacts of COVID-19. The Act also directed the USDA to administer the newly-created Coronavirus Food Assistance Program (CFAP). CFAP has two components. The first is the Farmers for Families Food Box program, which uses $3 billion to prepare and deliver emergency food boxes to food pantries across the country. The second component of CFAP is direct payments to agricultural producers. While much has been written about the direct payments to eligible producers, there remains a degree of confusion regarding payment rates and calculations.
Beginning May 26, USDA’s Farm Service Agency will be accepting applications from agricultural producers who have suffered marketing losses due to COVID-19. The program, announced May 19, provides assistance to producers of eligible commodities that have suffered a five percent (or greater) price decline as a result of the pandemic. The direct payments program requires one application and results in a single benefit, but the funding and legislative authority derives from two separate programs. The dual sources of funding have caused some confusion among stakeholders but are further outlined below. This allows for a larger level of payment to be delivered than either single program could provide. USDA estimates the first source of funding, the CARES Act, will account for about $9.5 billion in CFAP payments. The other source of funding, the Commodity Credit Corporation, will account for an additional $6.5 billion in payments. The CCC is a business entity with the USDA and was created under the New Deal, providing the Secretary of Agriculture with broad and discretionary authority for various purposes, including direct payments. Calculations for covered commodity categories are included below.
USDA will make an initial payment of 80% of the eligible 2020 CFAP participant’s calculated 2020 CFAP payment. This allows for checks to be delivered to farmers quickly and allows for USDA to evaluate how well the program is performing compared to expectations. There is a possibility the final 20% could be subject to pro-rationing, depending how close to expectations initial payments end up.
Farm Service Agency staff at local USDA Service Centers will work with producers to file applications. CFAP payments are subject to payment limitations per person or legal entity of $250,000. This cap is on total CFAP payments for all eligible commodities. Direct payment limits also apply to LLCs, corporations, and limited partnerships. These entities may receive up to $750,000 based on the number of shareholders (not to exceed three shareholders) who contribute at least 400 hours of active person management or personal active labor. To be eligible for payments, the person or legal entity must have an adjusted gross income of less than $900,000 for tax years 2016, 2017, and 2018 or demonstrate that 75 percent of their adjusted gross income comes from farming, ranching, or forestry.
Livestock
Cattle, hogs, and
sheep are included in the CFAP direct payment program. The components of the livestock CFAP payment are as follow:
For example, consider a cattle feedlot with sales of 800 fed cattle from January 15 through April 15 and a maximum inventory of 400 head from April 16 through May 14. The producer’s CFAP payment would be calculated as follows:
((800 x $214) + (400 x $33)) x 80% = $147,520
Consider a hog farmer with 7,200 head in sales of finished animals from January 15 through April 15 and a maximum inventory of 4,800 head from April 16 through May 14. The producer’s CFAP payment would be calculated as:
((7,200 x $18) + (4,800 x $17)) x 80% = $168,960
Dairy
Milk production is also included in the CFAP direct payment program. The components of the dairy payment are as follow:
In other words, the first component compensates for value lost on actual first quarter production and the second component compensates for value lost on a calculation of second quarter production. The second quarter production is calculated by multiplying the first quarter production by 1.014 (to account for increased production in the second quarter). It is expected milk production will be established in the same manner as was used for Dairy Margin Coverage. Generally, this includes cooperative- or processor-verified documentation for marketings of milk and includes dumped milk that was pooled under a federal marketing order.
Milk production is also included in the CFAP direct payment program. The components of the dairy payment are as follow:
For example, for a dairy farmer with 400 cows and 2,440,000 pounds of milk production in Q1
2020, his CFP calculation would be the following:
((24,400 x $4.71) + (24,400 x 1.014 x $1.47)) x 80% = $121,035
Non-Specialty Crops
CFAP direct payments are also available for eligible producers of non-specialty crops that have suffered significant price decline due to the pandemic. The source of the non-specialty crop direct payments also comes from two sources—CARE Act funding and the CCC program. Payment rates for each commodity are included below.
A direct payment will be made based on 50 percent of a producer’s 2019 production or the 2019 inventory as of January 15, whichever is smaller. The smaller value is multiplied by 50 percent and then multiplied by the commodity’s applicable payment rates.
For example, consider a corn farmer who had production of 800,000 bushels in 2019 and on January 15 had 500,000 bushels in inventory. The first step in calculating the CFAP payment is to determine the smallest value between 50 percent of 2019 production (50% x 800,000 = 400,000 bushels) or January 15 inventory of 500,000 bushels. Because 50 percent of 2019 production is smaller, 400,000 bushels is used for the first variable. The rest of the calculation can be found below:
400,000 bushels x 50% x ($0.32 + $0.35) x 80% = $107,200
If the same farmer instead had only 250,000 bushels in inventory on January 15, the calculation would change. Because 200,000 bushels is less than 50 percent of the 2019 production (50% x 800,000 = 400,000 bushels), the inventory value would be the first variable in the calculation:
250,000 bushels x 50% x ($0.32 + $0.35) x 80% = $67,000
The USDA’s Farm Service Agency is the entity charged with interpreting and carrying out the final rule. The aforementioned information is an attempt to bring clarity to the program based upon our reading and interpretation. Additional information on the program can be found at https://www.farmers.gov/cfap.