Focus on Ag: Ag aspects of the coronavirus aid package
On March 27 President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law, following unanimous passage by both the U.S House and Senate. The CARES Act authorizes up to $2.2 trillion in aid and financial assistance do deal with the health and economic impacts from the COVID-19 virus pandemic in the United States. This is one of the largest and most comprehensive financial bills ever passed by Congress. The legislation will impact nearly every citizen of the U.S. and most aspects of the U.S. economy in some shape or manner, including farm families, rural communities, and the U.S. agriculture industry.
Overall, the CARES Act provides approximately $48.9 billion for United States Department of Agriculture (USDA) programs. To put this in perspective, this dollar figure represents over 50 percent of the annual funding allocated for all USDA programs under the 2018 Farm Bill. An important portion of this funding, $14 billion, is allocated as additional funding authority for the USDA Commodity Credit Corporation (CCC). The CCC funds were used to make the 2018 and 2019 market facilitation program (MFP) payments to specific crop and livestock producers, as well as to fund other USDA programs. The aid package also authorizes an additional $9.5 billion emergency fund that is targeted toward dairy and livestock producers, fruit and vegetable growers, and fresh food markets.
The CARES Act provides $15.5 billion in additional funding for the USDA Supplemental Nutrition Assistance Program (SNAP) and an additional $8.8 billion for child nutrition programs. While not providing direct assistance to farmers, added funding for these programs will help maintain and increase demand for certain ag products. The dairy industry and fresh food markets have been hit especially hard by the lack of demand due to school closures and the shutdown of restaurants across the U.S. The legislation also provides some added support to rural hospitals and medical services, as well as for other local government functions.
Many farm families may also qualify for the direct cash payments to families and individuals that are included in the CARES Act. Any individual that earned less than $75,000, based on the adjusted gross income (AGI) in either their 2018 or 2019 federal tax return, would receive a direct payment of $1,200 from the federal government. Married couples with an AGI of less than $150,000 would receive a payment of $2,400. There would be an additional payment of $500 for every child that was claimed on the 2018 or 2019 tax return. These direct aid payments are expected to be made in April.
One aspect of the CARES Act that has garnered some attention related to agriculture is the $350 billion allocated to the U.S. Small Business Administration (SBA) to guarantee loans to small businesses. Small businesses and employers are defined as those with 500 or fewer employees. One interesting aspect of the SBA emergency loans is a provision that allows a portion of the loans to be forgiven, provided that the business maintains and pays their current employees. Many ag-related businesses and employers are looking into whether they may or may not qualify for these SBA emergency loans. Businesses that already utilize SBA loans will likely qualify for the emergency loan program, while other businesses will have to apply to see if they meet SBA qualification guidelines. Interested businesses should contact a local bank that is a certified SBA lender for more details on qualifications and the application process.
Ag-related questions related to the CARES Act and the current coronavirus situation
• Does the added CCC funding in the new CARES Act automatically mean there will be a third round of MFP payments in 2020?
Not necessarily. The 2018 and 2019 MFP payments were related to lost income due to the trade war with China and other countries. It is not apparent if the coronavirus will necessarily impact the new trade agreement with China or ag trade with other countries. However, given the added funding provided to the USDA and the CCC through the emergency legislation and the financial challenges facing farm operations, it is highly likely that some form of assistance similar to MFP could be made available to farmers and ranchers in the coming months. The aid package may look different than the 2018 and 2019 MFP payments and will likely involve more commodities, especially with added USDA emergency fund for targeted commodities.
• What strategies can be utilized following the sharp price decline for unsold 2019 corn and soybeans that are still in storage on the farm?
Many farm operators have a considerable amount of unsold 2019 corn and soybeans in farm storage. Following the coronavirus outbreak in the U.S., there was an immediate sharp drop in grain prices. The local cash corn market was hit especially hard, not only experiencing price drop on the Chicago Board of Trade (CBOT), but also having a rapid widening of local basis levels. That combination caused local cash corn prices to drop 50-60 cents per bushel in just a few days at many Midwest locations. In addition, many ethanol plants and other local grain markets are currently not accepting corn or only doing so on a limited basis. One strategy that farmers could utilize to get some temporary revenues from their unsold grain in storage is to utilize the CCC commodity loan program through local Farm Service Agency (FSA) offices. Local CCC loan rates vary from county-to-county. Loan rates are generally slightly over $2.00 per bushel for corn and $6.00 per bushel for soybeans in many areas of the Midwest. Be aware that due to the coronavirus, most FSA transactions need to be completed via phone or e-mail.
• Will the decline in cash grain prices impact 2019 farm program payments?
Any 2019 farm program payments for the PLC, ARC-CO and ARC-IC programs will be based on the final 2019 market year average (MYA) prices for corn, soybeans and other crops. The 2019 MYA price for corn and soybeans is based on national average monthly farm-level prices from Sept. 1, 2019 through Aug. 31, 2020, which are weighted for the percentage of bushels sold in each month. The 2019 MYA price projections as of March 1 were $3.80 per bushel for corn and $8.70 per bushel for soybeans. Further declines in the MYA prices would potentially enhance ARC-CO and ARC-IC payment prospects for producers that are likely to qualify, if they have not reached the maximum payment level. Corn and soybean PLC payments for 2019 still appear unlikely at this time, as do ARC-CO payments for corn in many counties.
• Why is it important to communicate with your ag lender, farm management advisors and family partners during financial challenges we are facing?
View ag lenders, farm business management instructors, marketing advisors, and other consultants as informal partners in a farm business. Ag lenders can be a valuable resource in making management decisions and understanding some of the emergency financing tools that may be available. It is best to include all partners and family members that are part of the farm operation in the discussion process, so that all key players are “on the same page” regarding financial decisions and adjustments that may affect the farm business.