Mike Conaway speaking at Commodity Classic 2017.
Mike Conaway

Budget deal offers extra money for agriculture

Section 199A fix not included in the final package that requires agriculture to begin to tackle spending under normal procedures.

The President signed a two-year budget package to keep the government running and also offers insight into how money will be allocated in the future. The Senate passed the bill 71-28 around 2am Thursday morning, and the House followed shortly thereafter with a vote of 240-186. The agreement paves the way for the next critical step in the government funding process, appropriations.

The budget deal contains important improvements for cotton growers and dairy producers and also gets two controversial budget issues out of the way before Congress begins to tackle the farm bill. However, it left out any fix for Section 199A, which has created an uneven playing field among cooperatives and private grain companies.

While other deals have been discussed in the past to provide support for dairy and cotton, this is the first one that will actually increase the baseline for the farm bill and essentially take the pressure off the agriculture committees to do more with less.

The Senate proposal would fix problems with the dairy Margin Protection Program, provide a pathway to new, customizable insurance tools and set the stage for additional improvements in the farm bill. Specifically, it will provide more than $1 billion to support dairy farmers.

The bill eliminates or slashes premiums by as much as 80% for small and medium dairy farms. It does this by raising the catastrophic coverage level from $4.00 to $5.00 for the first tier of covered production for all dairy farmers. It also adjusts the first tier of covered production to include every dairy farmer’s first 5 million lb. of annual milk production (about 217 cows) instead of 4 million lb. -- a recognition of the growth in herd sizes across the country. The agreement reduces the premium rates, effective immediately, for every producer’s first 5 million lb. of production, to better enable dairy farmers to afford the higher levels of coverage that will provide more meaningful protection against low margins.

It also makes the program more responsive to drops in prices and increases in feed costs and triggers payments more quickly. It modifies the margin calculation to a monthly (from bimonthly) basis to make the program more accurate and responsive to producers in difficult months. The bill provides increased flexibility as it offers an immediate chance to sign up or change coverage levels for 2018.

Another major component of the budget deal for dairy producers removes the $20 million cap on all livestock insurance, including the LGM Program. This will allow USDA to develop a wider variety of additional risk management tools that will be especially important for larger dairy producers and can complement the MPP.

Cotton changes

The bill includes language to make cotton eligible for the Price Loss Coverage program beginning with the 2018 crop year and returns cotton to the commodity safety net. This action would address ongoing and disaster-related economic challenges facing cotton producers and allow them to participate in the program, just like all other major U.S. commodity producers can.

Sen. Debbie Stabenow, D-Mich., worked with appropriations leaders Sens. Thad Cochran, R-Miss., and Patrick Leahy, D-Vt., to improve both the dairy and cotton safety nets and led the effort to provide immediate relief for dairy producers.

“I look forward to building on this progress in the 2018 farm bill,” Stabenow said.

House Agriculture Committee chairman Mike Conaway, R-Texas, has not been a fan of Stabenow hijacking past discussions that offered a fix for cotton but did not do the same for dairy.

Conaway still hopes the farm bill will receive a vote in the House before the end of March. Conaway, who addressed the crop insurance industry’s annual convention earlier in the week, said that would leave plenty of time to work out differences with the Senate's version of the bill and ensure that new legislation is finalized before the farm bill expires at the end of September.

“We will have difficult decisions to make,” he said, noting that there is “no reason to put it off just because (the debate) will be hard.”

Disaster aid

The deal also provides $89.3 billion in additional emergency disaster relief for states and communities affected by recent hurricanes, wildfires, and other disasters.  The deal strengthens disaster assistance for livestock and specialty crop producers.

A bill by Sen. Jerry Moran, R-Kan., that allows for partial payments through the Livestock Indemnity Program (LIP) for injured animals was expanded, as was his proposal to double the LIP payment limit. The disaster assistance legislation allows partial payments and eliminates the LIP payment limit.

This will be a retroactive change for 2017, meaning that farmers and ranchers across the country who lost cattle during natural disasters in 2017 will be aided by the program changes.

“Following last year’s wildfires, many of our nation’s farmers and ranchers experienced devastating losses that crippled their ability to do what they do best: feed the American people,” Moran said. “This is an extraordinary situation that requires an extraordinary response, and that’s why we’re making changes to the Livestock Indemnity Program to make it more effective and increase support for our ag community."

Section 199A fix left out

Legislators are still “working on” a fix to rectify the unintended consequences related to Section 199A included in the tax reform bill.

Currently, Section 199A provides an advantage to cooperatives over non-cooperative farmers. This could disadvantage small, independent grain elevators and large companies like Archer Daniels Midland (ADM) and Cargill. The law has tipped the scales heavily for producers to sell to cooperatives, and the marketplace has even seen a significant slowdown in forward-marketing contracts.

The new hope is that the Section 199A fix will find its way into that final package.

Randy Gordon, president and chief executive officer of the National Grain & Feed Association, said the group was disappointed that a solution to correct the unintended consequences of Section 199A could not be completed in time to be included in the continuing budget resolution being considered by Congress this week. Considerable progress has been made during the last several weeks of intensive effort toward reaching an equitable solution.

“The two fundamental goals of these efforts remain to replicate the tax treatment accorded to cooperatives and their farmer-patrons under previous Section 199 of the tax code and to do so in a way that restores the competitive landscape of the marketplace that existed prior to the enactment of Section 199A on Dec. 22, 2017,” Gordon said.

The National Council of Farmer Cooperatives (NCFC) president Chuck Conner said in a statement, “As the appropriations committees begin work on their late March legislation to fund the federal government through the end of the fiscal year, NCFC will work to include several other issues important to co-ops and their members. … Of special importance will be resolving the unintended impacts of Section 199A in a way that maximizes farmers’ economic returns during these trying times in rural America while maintaining the competitive balance that existed before passage of the tax reform bill.”

 

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