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USDA announces Coronavirus Food Assistance Program; no to DMC and supply management

Progressive Dairy Editor Dave Natzke Published on 20 April 2020

U.S. Secretary of Agriculture Sonny Perdue has unveiled the Coronavirus Food Assistance Program (CFAP), designed to take several actions to assist farmers and consumers in response to the COVID-19 national emergency.

Overview

The CFAP will use funding authorized under the Coronavirus Aid, Relief and Economic Security Act (CARES), the Families First Coronavirus Response Act (FFCRA) and other USDA existing authorities.

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The program includes two major elements: Of the $19 billion total budget outlay, $16 billion will be provided as direct payments for farmers and ranchers, and $3 billion will be used to purchase agriculture products, including meat, dairy and produce.

Payment details limited

Lots of questions remain regarding how direct payments will be determined. Sen. John Hoeven (R-North Dakota), chair of the Senate ag appropriations subcommittee, released additional details.

Preliminary information indicates U.S. livestock producers will receive about $9.6 billion in direct payments. Of that total, dairy farmers will receive about $2.9 billion, cattle producers will receive $5.1 billion, and hog producers will receive $1.6 billion.

Among crop producers, $2.9 billion will be distributed to row crop producers, $2.1 billion to specialty crop producers and $500 million to producers of other crops.

Qualified commodities must have experienced a 5% price decrease between January and April.

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A single payment will be determined using two calculations:

  • Producers will be compensated for 85% of the price loss during the period of Jan. 1-April 15, 2020.

  • Producers will be compensated for 30% of expected price losses from April 15 through the next two quarters of 2020.

The payment limit is $125,000 per commodity, and diversified operations will be able to choose a second commodity, with an overall payment limit of $250,000 per individual or entity.

The USDA is expediting the rule-making process for the direct payment program and expects to begin sign-up in early May, with payments starting by the end of May or early June.

Other details regarding eligibility, rates and other implementation will be released at a later date.

Food purchases and distribution

The second part of the program designates $3 billion for the purchase and distribution of ag products for those in need. On a monthly basis, the USDA will procure an estimated $100 million (each) in dairy products, meat products, and fresh fruits and vegetables.

The USDA will work with local food and regional distributors to provide pre-approved boxes of fresh produce, dairy and meat products to food banks, community and faith-based organizations, and other nonprofits serving Americans in need. In a press release on April 19, the USDA said it would begin inviting proposals over the next two weeks and will award contracts to purchase commodities and assemble and deliver food boxes. The USDA will hold an informational webinar for interested participants on April 21 to provide an overview of the program and instructions for submitting offers.

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DMC, supply management provisions not included

In a telephone conference with agricultural media on Friday evening, April 17, Perdue briefly addressed two other provisions sought by some dairy organizations but not included in the CFAP: reopening of the Dairy Margin Coverage (DMC) program enrollment period for 2020 and creation of a structure to control milk supplies, at least temporarily, as the industry struggles to find balance in changing demand and supplies.

Read: NMPF, IDFA propose ‘Milk Crisis Plan’ and Dairy CORE proposal seeks immediate cash infusion, regional supply management flexibility.

“Supply management is a much longer and serious question,” Perdue said, suggesting implementation would be too expensive.

“We chose not to [reopen] the Dairy Margin Coverage program,” Perdue said. “We literally begged people to sign up last year when Congress allowed farmers to retroactively sign up for 2019. The DMC is an insurance program, and it doesn’t make any sense to have an insurance program and let people decide to have coverage after they need it. It violates a principle and only trains people to not take the insurance as they should and then apply for ad hoc disaster subsidies later on when prices go down. We chose to indemnify dairy producers in other ways, rather than open the Dairy Margin Coverage program retroactively.”

Dairy reaction

While awaiting further details, reaction from dairy organization leaders was mostly positive.

California-based Western United Dairies (WUD) expressed reservations about the dairy payment calculations, noting that milk prices declined in March but that the lowest prices for the year are likely coming in April, May and June, which is when payments will cover 30% of the losses instead of the 85% for the first part of the year when things were going much better.

WUD also expressed concerns over the $125,000 per commodity payment cap. For an average California dairy of 1,200 cows producing an average 2,000 pounds of milk per cow per month, the maximum payment for a three-month period would be $1.74 per hundredweight (cwt).

In addition to making a case for a second CFAP payment later this summer, WUD said it is seeking specific information on how losses will be calculated and whether feed can be covered as a second commodity.

While calling the direct payments critical, Wisconsin Farmers Union President Darin Von Ruden said the COVID-19 pandemic has shown additional attention must be paid to the U.S. food supply chain, urging lawmakers to address consolidation, supply management and the price fixing.

“Dairy farmers are at a breaking point, and the need for federal action to manage the oversupply could not be more clear,” Von Ruden said. “Direct payments will offer some short-term relief, but these efforts will fail to support dairy farmers through the long duration of this crisis unless we also manage the oversupply of milk.”

In a statement released by Edge Dairy Farmer Cooperative and the Dairy Business Association, organization leaders said CFAP would help both farmers and consumers bridge a difficult financial period. “As the pandemic continues to wreak havoc on our economy, millions of Americans cannot afford food, many for the first time in their lives, and our farmers who produce this food are struggling to survive financially. This federal assistance will be a bridge for both.”

“We urge the USDA to distribute these much-needed funds to dairy farmers as quickly as possible, said John Rettler, dairy farmer from Neosho, Wisconsin, and president of FarmFirst Dairy Cooperative. “Time is of the essence as dairy farmers contemplate how to weather this storm of COVID-19.”

“Federal dairy assistance is critically needed as the nation’s dairy farmers face an unprecedented collapse of markets resulting from the shutdown of much of the economy,” said Jim Mulhern, president and CEO of the National Milk Producers Federation. “Dairy’s fortunes have been especially grim given the perishability of our product, its daily harvest and the fact that the virtual shutdown of the food service market has wiped out more than one-third of our product demand. After five years of poor prices, many producers faced financial difficulties even before the coronavirus crisis. Without more aid, this crisis could be their demise.”

As the COVID-19 crisis wears on, the dairy industry expects to lose $5 billion to $10 billion in sales for the remainder of the year, according to Michael Dykes, president and CEO of the International Dairy Foods Association (IDFA).

“Food service closures, a weakened export outlook and challenges within the supply chain have created conditions where the milk supply exceeds demand by at least 10 percent – a gap that could widen as supply increases to its seasonal peak and shelter-in-place conditions endure,” Dykes said. “IDFA will continue to urge Congress, the White House and USDA to use as many tools as possible – as quickly as possible – to bring relief to the dairy industry without creating any long-term market repercussions.”

Brent Gloy with Agricultural Economic Insights offered some analysis of commodity price changes, making calculations based on the average price over the first two weeks of April and comparing them against year-earlier prices and average prices in January 2020.

Using a Class III milk futures contract, the average price for April 1-15, 2019, was $15.83 per cwt. In January 2020, the June 2020 contract averaged $17.53 per cwt; for April 1-15, 2020, the June 2020 Class contract averaged $12.99 per cwt. As a result, the June 2020 Class III contract was down 18% from a year earlier and down 26% since January.

For corn, the average futures price for April 1-15 was $3.49 per bushel, an 11% decline from last year and a 13% decline since January. Soybean prices have fared a little better, declining by 9% since January. However, the “real carnage” was seen in cotton, live cattle and hogs, Gloy said. Live cattle prices declined 30% from a year earlier and 28% since January.

Read also: “What’s in USDA’s new coronavirus food assistance program?” from the American Farm Bureau Federation.  end mark

Dave Natzke
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