Very tentative funding breakdowns; USDA to tap CCC, Section 32 and other funding sources
President Donald Trump several times in recent days has indicated some $16 billion of Covid-19 farmer aid would be announced soon, but there is also funding available via the Section 32 program and other revenue sources, including language in previous Covid-19 aid legislation that allows the USDA secretary to tap the U.S. Treasury if it is deemed there could be a food shortage.
Timing of proposal. Sources say USDA Secretary Sonny Perdue will likely send a proposal to the Office of Management and Budget (OMB), and likely others, sometime the week of April 13, with some sources pinpointing a Wednesday dateline of April 15. It is unclear how long it will take OMB and others to sign off on the coming USDA proposal, but a fast turnaround is possible. That is why an official announcement of the package could be late the week of April 13 at the earliest, or the week of April 20.
The size of the coming package may be less than the $23.5 billion that Congress approved, and President Trump signed into law relative to Phase 3 of the Covid-19 rescue package. The coming plan looks to consist of $9.5 billion of targeted but not exclusively for livestock, dairy and specialty crops. The remainder of around $6 billion would come from the Commodity Credit Corporation (CCC), even though Congress authorized an increase of $14 billion in CCC borrowing authority, and this would likely mostly be targeted to row-crop producers. Of note, USDA Secretary Sonny Perdue and Sen. John Hoeven (R-N.D.) pushed for an additional $20 billion in CCC borrowing authority via the debate on the Phase 3 relief legislation, but Democratic lawmakers reduced that increase to $14 billion. But to repeat, there are other avenues of funding USDA can tap, including Section 32 and the U.S. Treasury, among perhaps other revenue sources, contacts advise.
Beyond CARES and CCC funding. The coming funding for ag relief is not limited to what is contained in the CARES Act, including CCC funding now and in the future. These include Section 32 funding, which according to sources has $1.3 billion remaining until the new fiscal year begins Oct. 1. But there is also language in prior relief legislation that says the USDA Secretary can tap the U.S. Treasury if there is deemed to be a shortage of food.
Perdue has indicated that the additional CCC funding will not be available until at least July due to legislative language regarding a June 2020 CCC audit.
Background. CCC currently has $7 billion to $9 billion in funding, but there are $2 billion to $3 billion in outstanding obligations; thus the $6 billion of CCC funding for the coming Covid-19 ag aid package, sources detail. The around $6 billion will likely focus on row crops and could be the first installment of aid ahead for 2020, some sources reason.
Agricultural bankers, farmers and others say that even though the $14 billion will not be available until July at the earliest, Perdue should nonetheless announce all the eventual funding from the CCC for row crops when he makes the initial Covid-19 announcement. But that may not be the case, at least based on information at this time.
A look back. Another contact said, “Last year, President Trump announced $16 billion in trade aid for farmers on May 23. Perdue didn’t announce details about signup until July 25. Even if farmers may have to wait until July or later to get payments or more information, why isn’t USDA committing to the $14 billion now as farmers start to plant? Perdue knows the money’s coming — Congress already appropriated the replenishment. They should announce the $14 billion for non-specialty crops now besides the currently available $6 billion; work to nail down their approach and make them decoupled from current plantings; and then start providing assistance in July. If Perdue keeps dancing on the head of that tiny little pin, he’s going to break it.” Others, however, say if Perdue were to announce an initial aid installment for row-crop producers, that would provide some assurance to bankers and others that aid is on the way.
Some wonder if President Trump has been adequately briefed about the complex CCC funding issue. In the past, Trump has always favored as high a figure as possible when it comes to aid or other matters, including purchases of U.S. farm and other products by China.
Assuming the proposal coming soon will be around $16 billion, sources were asked to guesstimate the possible funding breakdowns by commodity. The following is by no means nailed down, but this is how sources detailed the possible $9.5 billion in coming aid directed by Congress, again subject to change as more information or alterations in initial ideas become available (also, additional aid to some of the commodities listed below could come via Section 32 and other revenue sources, contacts stress):
• Over half of the $9.5 billion (direct payments, etc.) will likely be for cattle. Sources signal around $5 billion.
• $3 billion to $3.5 billion for dairy (no details on the aid specifics at this time).
• $1 billion to $1.5 billion for specialty crops.
Of note, sources were at a loss to detail aid for pork producers at this time. One source said, “This is all predicated on what, if anything, they're going to do on pork in terms of direct support, because pork is just tough because a lot of our pork problems are trade and excess supply.” Another source said, “There is some wiggle room in the funding amounts to provide some aid to the hog producers, but frankly the focus I hear is on cattle, dairy and specialty crops.” Sources signal some in the U.S. pork industry have asked for “assistance on labor issues and childcare for laborers.”
The $1 billion to $1.5 billion possibility for specialty crops, if announced, would be quadruple the amount this sector got ($285 million) via the Market Facilitation Program 2 (MFP-2) and if announced should get a favorable review from Sen. Debbie Stabenow (D-Mich.), who has challenged the equity of MFP-2 payouts.
The CARES Act (Phase 3) also specifies $450 million for food bank donations and could be further aid for beef, pork, dairy and specialty crops.
Most if not all of the $6 billion above the $9.5 billion targeted via the CARES act would likely go to row crops.
Impacts to the U.S. meat industry from Covid-19 restrictions and closures will likely be greater for beef than pork and poultry, according to Pro Farmer analysis in its latest weekly report to Members. Domestic beef use is about a 50/50 split between retail (primarily grocery stores) and food services (restaurants, schools, hotels, etc.). For pork, it’s about two-thirds retail and one-third food services. And for chicken, it’s about 40% each for restaurants and food services, with the other portion used primarily for pet food. Impacts, according to Pro Farmer analysis: With many restaurants reduced to carryout orders and most schools and hotels closed, food service demand has taken a major hit, which impacts beef the most. Retail sales will go up with sharply increased at-home cooking, but not enough to offset the food service losses. But the greatest impact will be to high-volume restaurant items.
Produce producers have also been very negatively impacted by the withdrawal of demand from food services. USDA sources signal U.S. potato producers are facing a significant drain in demand.
In calling sources about this topic, the following are some bottom-line assessments provided:
• Perdue will likely focus on those ag industries that have been most impacted by the demand destruction in the food service industry (restaurants, hotels, school lunches, etc.).
• Perdue has said row-crop producers just got a chunk of money via the MFP 2.3, but most note that is for last year's crop.
• If Perdue is concerned that his announcement may influence row-crop plantings, one contact said, “he should just go back to last year when the payments were decoupled and had nothing to do with current plantings. Last year it wasn't the trade mitigation payments that drove plantings, it was producers speculating about what would be in the program that drove their planting decisions.”
• Perdue has informed some lawmakers that he wants to focus on producers, implying that any processor, etc., aid could come in Phase 4 or other legislation. This would likely mean ethanol aid could be delayed. “How much is the right amount for ethanol?” one contact asked. But some ethanol aid could come via the existing funding available via the CCC ($6 billion) or in future CCC replenishment come July.
• A lot of requested aid is going to get kicked to another phase of legislation, several sources predicted. One source added: “The groups that are providing the letters of aid requests are not just producer-level support, which is very different. USDA has been spending a lot of time trying to figure out the short-term needs versus the long-term needs and they made those remarks on the processing side. You could see more aid happen later rather than sooner on the processing side.”
• A lot of the problems in cotton are post-farm gate where you had cotton that was purchased at 75 cents with the market now 55 cents. One source noted, “They're worried about defaults because China and other buyers won't honor the prices that they purchased, so there's a bunch of credit default risk.”
• One industry analyst said, “The key is not whether Perdue has access to additional CCC funding before July but whether he announces relief now rather than wait. Farmers are going into the field to plant knowing it will likely be at a loss to them to do so. So, the answer is to use the $9.5 billion, the residual amounts already in the CCC that are not already required for other program needs, and the $14 billion even if it is not available yet. That's about $24 billion. That's enough to meaningfully address all ag though it hardly make them whole. If he does just the $9.5 billion and the portion in CCC not needed for other programs, that is not enough to do a comprehensive program that is meaningful. Bottom line: Announcing a program of anything less than the $23.5 billion that Congress provided USDA is going small ball when all of the rest of government is being told to go big. This is about avoiding another Great Depression and USDA ought to think in that way, much like SBA is having to rethink how it runs its programs.”
Comments: As noted several times, the coming final proposal could be different from some of the suggestions discussed in this special report. What is most important from the interviews on this topic is that USDA will not be at a loss of funding, be it from the CCC, the $9.5 billion supplemental funding, the Section 32 program and the ability for USDA to tap the U.S. Treasury and other revenue sources if deemed necessary. So we await the official release of the package that should hopefully show USDA has been very creative in trying to help the U.S. ag and food sector deal with a collapse of the food services sector.