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Eligible bushels for coronavirus payment remain unclear, economists say
INDIANOLA, Iowa -- A government program that is offsetting commodity price declines from January to April 2020, announced on Tuesday, is being criticized by some farmers that may not get a payment. Agricultural economists understand the criticism on principle but not from an economics standpoint.
That program is the $19 billion Coronavirus Food Assistance Program (CFAP).
READ MORE: CFAP applications to open May 26
Plainly speaking, the government estimated the price decline for grain farmers between mid-January and mid-April and determined that it would pay farmers for half of that decline.
For corn, the payment is 67¢ per bushel; for soybeans, it’s 95¢ per bushel.
Producers will be paid based on inventory subject to price risk held as of January 15, 2020, according to the USDA's announcement Tuesday.
A payment will be made based on 50% of a producer’s 2019 total production or the 2019 inventory as of January 15, 2020, whichever is smaller, multiplied by the commodity’s applicable payment rates.
Farmers will get a first-round payment of 80% of the money they are due, with the rest to be made later.
Enrollment begins May 26 and runs through August 28.
In order to be eligible for a payment, farmers could not have marketed those eligible bushels before January 15, 2020.
However, economists are explaining that the farmers who are not getting a payment are better off than those getting one.
Because the grain marketed before January 15, 2020, garnered farmers more than 16¢ per bushel better than the net payment from CFAP.
In a jab at the CFAP payment qualifications, one farmer on social media posted, “It’s amazing how the coronavirus kept me and so many others from selling $4.40 December corn last year.”
Ag economists say that farmers criticizing the CFAP program are mistaking it for normal government stopgap programs.
Seth Meyer, Food and Agricultural Policy Research Institute (FAPRI) researcher, says the CFAP is not a price-support program; instead, it’s a coronavirus program on impacts felt on crops and livestock.
“These are payments that are going to reflect the immediate impact of the coronavirus on crops and livestock farmers. So, the USDA is saying we’re going to focus on the impacts of the 2019/2020 crops and livestock production for 2020. And this program isolates the impact to farmers from January to April 2020,” Meyer says.
The USDA is saying that the CFAP payment to corn and soybean farmers will be based on those bushels not sold through a cash or futures contract by January 15, 2020.
Because many farmers had crops already marketed by then, there are many that will be left out of this round of government bailouts.
Some farmers are asking why January 15 is such a magical date for the USDA to use as a guideline for the CFAP program.
“On January 15, 2020, keep in mind that we were coming off of a crop year that everyone was glad to have behind them. 2019 was an uncertain year with a ton of anxiety, and the U.S., China’s Phase One trade agreement was recently signed. Plus, the coronavirus spread hadn’t started, yet, on January 15. Because most of the price decline considered for this CFAP payment is coronavirus-based, that’s why that date was selected, I suspect,” Meyer says.
Other ag economists say that it's hard to define a precoronavirus date.
Winners & Losers
CFAP is no different than any other government programs, where some people get paid too much and others don't get enough, Meyer says.
For instance, a farmer who marketed all of his/her grain on January 10, 2020, didn't see a coronavirus impact, but a farmer who marketed grain on January 20 might still get the CFAP payment.
“There will always be quirks like that in any program. But, folks need to keep in mind that the USDA is saying this is a payment for impacts on the 2019 crop from the coronavirus,” Meyer says.
There are some farmers and other market watchers who are expressing that this CFAP program is discouraging farmers from having a good grain marketing plan.
“It’s true that folks will get part of the price decline from January to April, 2020. But, they are only getting a little over half of it,” Meyer says. “And they only get half of the decline on half of their 2019 production.”
Meyer added, “Folks need to keep in mind that a good marketing plan is still important. And, I know it’s hard to set the CFAP payment aside and not have them influence how their 2021 positions may look, but, in theory, this program shouldn’t influence 2021 marketing decisions,” Meyer says.
Scott Irwin, University of Illinois ag economist, says the farmers who don't qualify for this payment are taking a price-support perspective, which normally means payments are equally distributed.
“Yes, farmers who did a good job of marketing may not get the payment, but they are still better off and probably by a lot,” Irwin says. So, their argument is that they want to maintain their marketing advantage over their fellow farmers through the coronavirus payment. If I marketed corn preharvest at $4 per bushel while others waited and then sold at $3 per bushel, I have a $1 advantage. The coronavirus payment will offset some of that advantage,” Irwin says.
Irwin added, “But, it’s easy to overestimate how much backfilling this CFAP is really doing. On net, the most generous corn payment from this stopgap will be 16¢ per bushel. So, if you were a better marketer than your neighbor farmers by 60¢ or $1 per bushel, which situation would rather be in? I'd still rather be the really good marketer.”
It‘s worth noting that there is an easy calculation for eligible grain farmers to use to figure their CFAP payment.
To calculate a payment, multiply $0.1675 by the total 2019 production. Then multiply $0.335 by the unsold grain as of January 15, 2020. The lessor of the two is the payment amount to be received.
Producers will be able to offer up their eligible bushels on a self-certified basis. Some economists believe this to mean that individual farmers will be telling their Farm Service Agency officers that these bushels that they are reporting are correct.
Although farmers could get audited one day, they will be able to report to the Farm Service Agency eligible bushels without extensive documentation upfront.
There are still many questions that farmers have about eligible bushels.
The USDA document says that forward marketed grain does not qualify for a CFAP payment.
However, it’s unsure whether crops that are hedged with a futures contract, but not sold yet, are eligible.
The producer education on all of this will be the heavier lift for this program. In theory, if a farmer sold corn on a forward contract for an April delivery that shouldn’t qualify for a payment.
Meyer says FAPRI will be working on producer education documents, regarding the sign up process for the CFAP program.
READ MORE: How to check corn for freeze damage
Irwin agrees that the definitional side of this program are still unanswered.
“If a farmer carried more than half of his/her grain inventory after January 15, 2020, but it was hedged in the July futures contract. Does that qualify for the payment or not? I don't think the FSA folks have figured it out.”
In addition, there are issues of basis contracts, delayed pricing grain, futures hedges, options contract positions, marketing contracts with advisory services.
“How are these going to effect a farmer’s eligibility? Those are going to be sticky points,” Irwin says.
Before FSA employees can help farmers answer these questions, the FSA employees will have to get training first, Irwin says.
Does this CFAP program set up the possibilities for another market facilitation program (MFP) payment? The University of Missouri researcher tends to believe so.
“There’s already legislation floating around for additional types of payments,” Meyer says.
The negative impact on farmers due to the coronavirus is estimated at $30 billion, according to FAPRI.
“What we’ve seen so far in government payments doesn’t totally offset that damage. That’s not to say that we should or shouldn’t offset all the damage, but there could be additional payments that follow,” Meyer says.
In July, the Commodity Credit Corporation fund gets replenished to the tune of $14 billion. So, there could be a second round of coronavirus payments, Meyer speculated.
“You know, maybe the government is saying here is this payment that addresses where we are at now, and maybe there will be another one later, but we don’t want to tell you because we don’t want to distort your decisions, because that is the last thing we would want to do. But, in July the new money shows up and if that is distributed, it would mean, in aggregate, it would come close to the $30 billion estimate of loss from the coronavirus,” Meyer says.
Keep in mind, the government still needs to fund the Farm Bill ARC/PLC payments that will be due to farmers October 1, 2020.