Building a new season
by Sally Colby
Spring is here and farmers keep farming; hopeful that this season will bring positive changes. That may happen as a result of the USDA’s recent announcement of the Coronavirus Food Assistance Program (CFAP), a $19 billion relief support program for farmers, ranchers and consumers.
Dr. Andrew Novakovic, professor of Agricultural Economics at Cornell University, said the program designates $15 billion for direct subsidies to farmers and $3 billion for domestic food assistance programs. The USDA either buys foods or uses a larger system to enable the acquisition of products that will be distributed to those who need it.
“At the moment, there are three sources of information about the program,” said Novakovic. “One is the CARES Act legislation, which says ‘we’re putting specific amounts of money into certain buckets at USDA’. The second source of information is the secretary’s press release, where he gave more detail on how they’re going to use the money in those buckets.”
The third source of information is from North Dakota Senator Hogan, who heads the Appropriations Committee. “He gave more detail about which sector gets how much money and what the rules will be,” said Novakovic. “I know the USDA is working on its own rules, and it would be premature to assume the rules that come out of USDA are identical to what Senator Hogan said. We have to wait for USDA to come up with rules.”
Novakovic said if Senator Hogan’s numbers are right, the $15 billion will be allocated to ag products in six categories: cattle, dairy, hogs, row crops, specialty crops and a miscellaneous ‘other’ category. Novakovic said these categories are from USDA farm cash accounts used to describe sales of these products. Novakovic added that the legislation doesn’t provide details about how much money will be distributed in various categories, adding that’s normal until the USDA interprets the details. Secretary Perdue said one-third of food donations will be allocated to dairy, one third to meat products, and one-third to fruits and vegetables.
“The other thing Senator Hogan’s announcement would suggest is that more money is going to be allocated to the livestock industries, including dairy, than would be their normal share of total farm cash receipts (gross income),” said Novakovic. “If you looked at gross revenue from selling cattle, hogs and every other thing – the gross revenue from selling dairy would be about 10%. Senator Hogan’s numbers say dairy will get about 18% of the $16 billion.”
The benefit allotted for animal agriculture is about 70% of the total, with less going to row crops, fruits and vegetables and specialty crops, which will all receive about the same share of benefit money as they have of farm cash receipts.
“I think the way to interpret this is they’re emphasizing agricultural products that result directly in food for human beings,” said Novakovic. “They aren’t worried as much about corn and soybeans, which received the lion’s share of money for the market facilitation program (MFP).”
Novakovic said it’s important to remember that the MFP was intended to compensate farmers for trade disruptions. “This program is intended to compensate for domestic demand disruptions,” he said. “It makes sense that it would focus on human foods if that’s how this shakes out.”
According to Novakovic, the program will determine how much lower the price is now versus January to come up with a dollar per cwt or dollar per pound, then 85% of that is applied to some quantity. “I don’t know this for a fact,” he said, “but I bet the USDA will use national average prices. It isn’t going to be my price or a state price – it’s going to be prices from NASS.”
Novakovic believes that for dairy, production history reported for the DMCP will be used for the calculation. “It isn’t going to matter how much milk you sold in March or any other month,” he said. “These programs are going to be run by the FSA, and they have quite a catalog of programs where farmers have to establish some kind of base.”
When the DMCP became available, about half of dairy farms signed up at $4. “What matters is that you established production history,” said Novakovic. “If you don’t have that, I don’t think USDA is going to prevent you from establishing it in order to formalize your ability under the new program if that’s the way they decide the quantity side.”
At the end of 2019, the dairy market was looking good and farmers were optimistic about prices. “The last time we had a DMC payment was for June 2019 milk,” said Novakovic. “We were on the up. All the analysts were saying 2020 was going to be a good year, and there was no expectation anyone would be close to getting a payment under DMC.” Novakovic added that most of the 13,000 farmers who have coverage under DMC took $4 (the lowest) coverage. “About 700 or so took $9.50 (the highest) coverage, and I think it’s a sure bet that everybody at that higher level of coverage were people who made a five-year commitment,” he said. “They lucked out to have that much coverage in a year that nobody thought a payment would be made – instead, it’s going to be the largest payment ever.”
Novakovic said the program includes payment limits, which will be based on commodities and entities. “If you’re a farm that sells corn, beans, hay and milk, you can claim all those categories,” he said. “There’s a maximum of $125,000 for each commodity, but you can only claim up to $250,000 in total.” As is the case with the DMCP, the $250,000 is not per farm, it’s per actively engaged entity. If a spouse can demonstrate that he or she is actively involved in the management of the farm, they can both be considered applicants for benefits and both quality for the $250,000 entity.”
Despite its problems, Novakovic believes the dairy industry is in better shape than meat. “There are a lot more dairy plants,” he said. “If one goes down, it isn’t that big a deal in the grand scheme of things. There’s a lot more concentration in meat processing, so they’re much more vulnerable just by the nature of the work – people standing shoulder to shoulder, back to back working in an environment that’s very hard to control. If you employ social distancing rules in the plant, productivity will be impacted, and limits the number of animals that can be processed in an day.”
Due to FSA’s outdated software and the time required to implement a large program, Novakovic said the start of the program may be somewhat unwieldy. “Any time they can build on an existing program, they will, which is why I think they’re going to borrow a lot of information from Dairy Margin Coverage,” he said. “The other thing to keep in mind is that these employees are in their homes trying to get things done,” he said. “They’re doing their best in tough circumstances.”