Reviewing the CFAP Payment Formula for Non-Specialty Crops

On May 19, USDA unveiled the details of the Coronavirus Food Assistance Program, which provides direct payments to farmers and ranchers to partially offset COVID-19-related losses for livestock and specialty and non-specialty crops, e.g., Reviewing Coronavirus Food Assistance Program Details. Sign-up for the CFAP program runs from  May 26 through August 28.

The Coronavirus Aid, Relief, and Economic Security Act provided the Agriculture secretary with an immediate $9.5 billion and the Commodity Credit Corporation with a $14 billion replenishment, expected to be available later this summer, i.e., What’s in the CARES Act for Food and Agriculture. For the CFAP direct payments, which will be divided by commodity, USDA combined existing CCC funding of $6.5 billion with the $9.5 billion from the CARES Act.

Reviewing CFAP Payments and Payment Rates

For non-specialty crops, e.g., malting barley, canola, corn, upland cotton, millet, oats, soybeans, sorghum, sunflowers, durum wheat and hard red spring wheat, payments will be attached to actual 2019 production and will be paid based on inventory subject to price risk as of Jan. 15, 2020. Payment rates for the non-specialty crops are identified in Figure 1.

A single payment will be made based on 50% of a producer’s 2019 total production or the 2019 inventory as of Jan. 15, 2020, whichever is smaller, multiplied by 50% and then multiplied by the sum of the commodity’s applicable payment rates. Producers will receive 80% of this CFAP payment up front.

The payment formula: min[50%×2019 Production, Jan. 15 Inventory]×50%×[CARES Payment Rate + CCC Payment Rate]

For example, a corn producer with 300,000 bushels of 2019 production and 100,000 bushels in inventory on Jan. 15 would be eligible for a CFAP payment on the 100,000 bushels at a payment rate of 33.5 cents per bushel, or $33,500. The first CFAP payment would be 80% of this total, or $26,800, i.e., $26,800 = 80%×min[50%×300,000, 100,000]×50%×[$0.32+$0.35].

Similarly, a cotton producer with 2019 production of 1,000 bales and 500 bales in inventory on Jan.15 would be eligible for a CFAP payment on 500 bales at a payment rate of 9.5 cents per pound, or $22,800. The first CFAP payment would be $18,240.

CFAP Payment Limitation

CFAP includes a payment limitation of $250,000 to be applied to the total amount of CFAP payments made for all eligible commodities. Also, entities structured as corporations, limited liability companies and limited partnerships may receive $250,000 per shareholder up to $750,000 for those who contribute at least 400 hours of active personal management or active personal labor. Participation in other farm programs such as Agriculture Risk Coverage, Price Loss Coverage, Dairy Margin Coverage and Dairy Revenue Protection is complementary to CFAP and will not lower a recipient’s CFAP benefits.

To ensure the availability of funds, producers may receive a portion – 80%, or up to $200,000 -- of the maximum total payment within seven to 10 days of the application’s approval. The remaining 20% of the payment that remains below the payment limit, likely no more than $50,000, will be paid at a later date, provided funds remain available.

As producers sign-up for CFAP, many are wondering how quickly the payment limit will be reached. Each commodity covered under CFAP has an associated payment rate, which is also segmented by funding source -- the CCC or the CARES Act. In addition, each segment of the industry, i.e., non-specialty crops, livestock, specialty crops, wool and dairy, has its own payment formula.

When the previous formula is solved for bushels or pounds and simplified, the payment formula can be used to calculate the largest amount of inventory or half of 2019 production possible, subject to price risk, before a farmer or rancher reaches the payment limitation.

Bushels/pounds = $500,000 / [CARES Payment Rate + CCC Payment Rate]

At 1.5 million bushels, oats have the largest inventory and the highest production cap before reaching the payment limitation. For the two wheat varieties, 1.3 million bushels of hard red spring wheat or 1.2 million bushels of durum wheat would cause a producer to reach the payment limitation. For corn, 746,269 bushels would cause a producer to reach the payment limitation, while soybeans would reach the limit with 526,316 bushels. A canola producer would need to submit 25 million pounds worth of canola to reach the payment limit, while upland cotton producers reach the payment limit with 2.6 million pounds of cotton.

Importantly, these totals are unpriced bushels or pounds defined as one-half of 2019 production or inventory on Jan. 15. Figure 2 displays the maximum bushels and pounds associated with non-specialty crops that would reach the CFAP payment limit of $250,000.