Signups begin May 26 for $16 bil. CFAP; dairies payments equate to Q1 milk x $6.20/cwt

Farmers and ranchers deemed essential to our nation’s future; bulk of payment totals under two calculations to be sent a week to 10 days after signup

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By Sherry Bunting

WASHINGTON, D.C. – President Trump and USDA Secretary Sonny Perdue released the long-awaited details on the $16 billion Coronavirus Food Assistance Program (CFAP) direct payments to farmers this week, indicating that dairy farmers will be eligible for two payment rates across first and second quarter production — and those rates pencil out to be equal to $6.20 per hundredweight multiplied by first quarter production, including milk that was dumped.

Farms using USDA Dairy Margin Coverage (DMC), Dairy Revenue Protection (DRP) or Livestock Gross Margin (LGM) programs, or certain types of forward pricing through cooperatives or brokers based on futures markets, are eligible for CFAP direct payments on all pounds of milk production, even the pounds enrolled in these types of risk management tools. Participation in other forms of government aid through the Small Business Administration does not affect a farm’s eligibility for direct payments through CFAP.

Signups with USDA Farm Service Agencies begin May 26, and USDA intends to send 80% of the total calculated Q1 and Q2 payment to farms within seven to 10 days of their signups. The remaining 20% will be paid later, pending the availability of funds in the $16 bil. package after all eligible commodity applicants receive first payments.

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Screenshot of CFAP payment spreadsheet calculator across all eligible commodities. A preview video on how to use the calculator and fill out forms can be found at this link — Check back at www.farmers.gov/CFAP for the spreadsheet calculator or find it through your FSA portal.

Applications will be received until August 28, 2020. USDA has a video for signup, explaining how to use the online calculator spreadsheet, across commodities at this link.

To calculate payments, USDA is using $4.71/cwt from the CARES Act applied to a dairy farm’s first quarter (Jan-Mar) “actual” milk production and $1.47/cwt from CCC funds for a second quarter (Apr-Jun) “calculated” production that is equivalent to the first quarter pounds multiplied by a factor of 1.014 to reflect seasonal production increase for Q2.

Those two payment rates with the second quarter calculation of production push the total payment to be equivalent to multiplying first quarter production by about $6.20/cwt.

With the 80 / 20 split in how this total payment will be sent, farms shipping 5 million annual pounds of milk with roughly 200 cows could expect a payment around $60,000 by early June if they sign up at the end of May, with the balance of roughly $15,000 in a later payment, pending availability of funds.

Responding to bipartisan support from members of Congress asking for payment limits to be increased so that larger multi-generation family farms can benefit, USDA expanded the payment limits to $250,000 per farm entity even with multiple eligible commodities. The previous limit was $125,000 per commodity and $250,000 per farm.

The payment limits were increased for larger farms with multiple ownership structure. Partnerships with two owner-operators would have a payment limit of $500,000, and the maximum limit for any farm structured as an LLC, LLP or corporation with three or more owner-operators is $750,000.

These payment limits apply to the total amount of money a farm can receive even if applying under more than one commodity, such as dairy and crop or dairy and beef.

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Graphic by Center for Dairy Excellence risk management coordinator Zach Myers.

Doing the math on larger herds, it appears that a 1000-cow dairy would stand to receive around $325,000 total payment (split 80%, or $260,000, right away, and the remaining 20% later pending available funds). This puts a 1000-cow dairy over the single-owner limit but under the partnership two-owner limit.

The rough math on a 2000-cow dairy comes out to a total payment of around $650,000, which is getting close to the hard-cap of $750,000. A farm of this size or larger, with three or more owner-operators, would have a payment limit of $750,000.

Dairy economists Mark Stephenson and Andrew Novakovic at the Dairy Markets and Policy website have a more detailed paper on this that can be downloaded downloaded here.

Eligibility is limited to owner-operators who materially participated in the dairy (400 hours minimum). For those deriving 75% or more of their income from farming/ranching, there is no adjusted gross income limit for eligibility. For owners not in that category, the adjusted gross income limit to be eligible for CFAP payments is $900,000.

To be eligible for these payments, farms must also show “conservation compliance” regarding the highly erodible land and wetland conservation regulations.

The original USDA notice stated that milk priced on forward contracts would be ineligible for CFAP direct payments, and under ‘dairy eligibility’ was original language stating: “Any milk production that is not subject to price risk for any time during January, February or March is ineligible.” However, USDA removed this language about forward contracting in the final rule for May 21 Federal Register publication.

USDA has confirmed that milk pounds covered by USDA risk management programs like DMC, DRP and LGM, as well as some types of forward contracts based on futures markets through cooperatives and brokers, are eligible for the CFAP direct payments. 

Forward contracts are a gray area. An example of ineligibility could pertain to milk pounds that are specifically priced under a binding contract where pricing is determined ahead of time, such as cost-plus, and where no changes were made to reduce those contracts or charge marketing fees during COVID-19. These are not common contracts, but some larger farms have such contracts with certain processors outside of the Federal Milk Marketing Orders.

In short, the final rule as prepared for Federal Register publication on May 21 no longer contains language excluding risk-managed milk from being eligible, but a farmer applying for CFAP payments is still signing a statement that the pounds of milk certified had price losses of more than 5% and incurred other marketing and inventory costs or deductions during COVID-19.

Producers are encouraged to call their local FSA offices as soon as possible to set up phone appointments for application and to find out how to provide the information required for their applications and forms, such as tax ID number, ownership structure of the farm, adjusted gross income if applicable and pounds of first quarter milk production via milk check settlement statements Jan. through March, or other documentation for dairies doing on-farm processing.

Any milk that was dumped on farms in March due to COVID-19 supply chain disruptions that is not included in the milk check pounds can also be self-certified by a producer’s record of this dumping, according to USDA.

These CFAP payments help producers offset COVID-19-related declines in income by price loss and sales loss for dairy as well as livestock and identified specialty and non-specialty crops.

Secretary Perdue indicated that for livestock and poultry growers forced to euthanize animals due to supply chain disruptions, a different program will handle those losses once USDA has the data on these occurrences to review. These CFAP payments are only for animals sold in the first quarter and animals subject to price risk that are a part of a producer’s inventory on the date chosen in the second quarter.

Included under livestock are payments per head for specified classes of cattle (excluding cattle intended for dairy production), hogs, sheep (lambs and yearlings only) and wool.

CFAP_Livestock_Payment_Rate_Figure_2

As a side note, there are questions about whether or not CFAP payments for beef cattle apply to dairy cull cows. It is clear that cattle sales intended for dairy are not eligible for cattle payments. However, dairy producers feeding Holstein or Dairy-cross cattle for the beef market, or raising / backgrounding such calves for feedlots may apply for cattle payments. Cull cows may be eligible under “Mature Slaughter Cattle” for Q1 actual sales, but the “inventory at risk” method is not appropriate for dairy cull cows since they are dairy production animals while they are in “inventory,” not beef animal inventory waiting for a slot at the packing yards. Youngstock sold for to beef or veal growers, not dairy replacements, can be entered under feeder cattle. Check with your FSA office.

Assistance to cattle producers has two components – cattle sold between January 15, 2020 to April 15, 2020 and cattle inventory subject to price risk on a date of the producers choosing between April 16, 2020, to May 14, 2020. Livestock payments are per-head are shown in the Farm Bureau chart above by the two rates used for Q1 and Q2.

USDA confirmed in a media call that payments will only go to producers with eligible cattle and livestock, including contract growers if their contract allows them to have price risk in the livestock. Processor-owned livestock are not eligible for these direct farm payments.

CFAP_Non_Specialty_Payment_Rate_Figure_1_CorrectedIncluded under non-specialty crops are payment rates for malting barley, canola, corn, upland cotton, millet, oats, soybeans, sorghum, sunflowers, durum wheat and hard red spring wheat. Crops grown for on-farm feeding of dairy animals or livestock are not eligible, but cash crop sales are.

Included under specialty crops are payment rates for a variety of fruits and vegetables as well as almonds, pecans and walnuts, beans and mushrooms.

USDA has a special webpage devoted to the CFAP program at https://www.farmers.gov/cfap

CFAP payments are not government “handouts” or “bailouts”, but rather the government’s recognition that our nation’s farmers and ranchers are essential to our nation’s future. Like other businesses receiving federal assistance during this worldwide COVID-19 pandemic and economic shut down, the losses farmers are suffering are monumental and totally outside of their control and outside of the disrupted supply chain’s ability to handle under these unprecedented conditions.

Throughout the past eight weeks of publicized empty shelves, purchase limits and dumping of milk — as well as euthanizing of livestock and plowing under of produce unable to be harvested – consumers are showing renewed appreciation for American farmers and ranchers. These much-needed funds will not make farmers whole but are a life boat in uncharted waters.

According to American Farm Bureau Federation, this program is considered “an important downpayment in helping farmers and ranchers deal with the unprecedented and unexpected economic fallout related to COVID-19.”

According to Jim Mulhern of National Milk Producers Federation, the details on the dairy payments are “more than we anticipated,” but at the same time “more is needed,” he said.

Both AFBF and NMPF – as well as other farm organizations – indicate they are working with lawmakers for additional assistance in the future as the full extent of the pandemic and crisis become known. USDA will be replenishing the CCC by $14 billion in July, and Congress is currently looking at what additional measures are necessary to assist producers of commodities not included in the CFAP package.

Mulhern noted in a PDPW Dairy Signal webinar Tuesday that the dairy industry stands to lose nearly $9 billion this year if the recently released World Agriculture Supply and Demand Estimates of 2020 milk price comes to fruition – or worsens.

He said that even with the expanded limits for CFAP, “This still leaves larger operations (over 2000 cows) without coverage for larger losses. I think there’s a good chance that additional legislation, like the House ‘HEROES’ bill, to have the payment limit issue removed.”

Mulhern also noted that one of the biggest CFAP benefits to all dairy farmers right now are the nearly $450 million in new dairy purchases that were recently announced through the $317 in dairy product awards for the new food box program May 15 through June 30 and the $120 million in additional Section 32 dairy purchases out for bid for delivery to food programs in July.

The good news is that cheese, butter, powder, and milk futures prices have been rallying over the past four weeks with near-term Class III milk contracts well into the $17s — more than $5/cwt higher than the current for May. Mulhern expects to see a volatile pattern in dairy product and futures markets for the rest of this year.

To stay up to date on information from USDA about the CFAP payments, including an FAQ, click here

The 40-page official rule on was published today, May 21, in the Federal Register. Read it here.

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