Form 1099-NEC now used to Report Nonemployee Compensation

By: David L. Marrison, OSU Extension Educator

2020 has been a year of change and this holds true for tax management. Farm and agribusiness managers will need to be aware that significant changes have been instituted with regards to reporting nonemployee compensation. The goal of this article is to share details on the return of IRS Form 1099-NEC and how it should be used instead of the IRS Form 1099-MISC when reporting compensation for nonemployees.

FORM 1099-NEC

Starting in tax year 2020, Form 1099-NEC will be used to report compensation totaling more than $600 (per year) paid to a nonemployee for certain services performed for your business.

Previously, business owners would file Form 1099-MISC to report nonemployee compensation (in box 7). Now, this compensation is to be listed in Box 1 on the 1099-NEC.  It should be noted that Form 1099-NEC was previously used by the IRS until 1982 when the IRS added box 7 to Form 1099-MISC and discontinued the 1099-NEC form.

If the following four conditions are met, you must generally report a payment as nonemployee compensation on Form 1099-NEC:

  1. You made the payment to someone who is not your employee;
  2. You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
  3. You made the payment to an individual, partnership, estate, or in some cases, a corporation; and
  4. You made payments to the payee of at least $600 during the year.

Examples of “nonemployee compensation” could include hiring a neighboring farmer to harvest, spray, or plant your crops or independent contractors such as crop consultants, mechanics, accountants, and veterinarians.  Payment for parts or materials used to perform the service (if supplying the parts or materials was incidental to providing the service) is included in the amount reported as nonemployee compensation.

Reporting is needed for payments made to unincorporated businesses (ie. sole proprietorship or LLC) in excess of $600. Generally, payments to a corporation do not require a 1099-NEC to be issued or payments made to LLC which have elected to be taxed as a corporation.  One exception that should be noted is that payments over $600 to an attorney, regardless of business entity (corporation or unincorporated), need to be reported on the Form 1099-NEC.

A form 1099-NEC can be issued even if the payment is below the $600 threshold or is to a party that you are in doubt as to whether you are required to do issue this informational return. There are no prohibitions or penalties for doing this.

If you are required to file a Form 1099-NEC, you must furnish a statement to the recipient and to the IRS by January 31 of each year or the next business day, if the due date is on a weekend or holiday.  For the tax reporting year of 2020, the form is due February 1, 2021.

Why the Change?

The Protecting Americans from Tax Hikes (PATH) Act of 2015 accelerated the due date for filing 1099 forms that include nonemployee compensation from February 28 to January 30 and eliminated the automatic 30-day extension for forms that included nonemployee compensation. This created a situation where there were two deadlines for the same form. Separating the nonemployee compensation from the 1099-MISC to the 1099-NEC is expected to reduce fraud and to avoid fines for late filing.

Form 1099-MISC

The Form 1099-MISC will still be used to report a variety of income payments made to others.  These include, but are not limited to:

  • At least $10 in royalties (box 2) or broker payments in lieu of dividends or tax-exempt interest (box 8)
  • At least $600 in:
    • Rents (box 1)
    • Prizes and awards (box 3)
    • Medical and health care payments (box 6)
    • Crop Insurance proceeds (box 9)

The 1099-MISC forms must be to the recipient by January 31 but remain under the old filing deadline to the IRS of February 28 or in the case of e-filed returns March 31.

Penalties

If you fail to file a correct information return by the due date (to the IRS or service provider) and you cannot show reasonable cause, you may be subject to a penalty.

The amount of the penalty for not correctly filing a 1099 form is based on when you file the corrected return. The penalties can be significant.  More details can found at: https://www.irs.gov/pub/irs-pdf/i1099gi.pdf

IRS Forms

Producers can view the instructions for completing IRS Form 1099-NEC and 1099-MISC at: https://www.irs.gov/pub/irs-prior/i1099msc–2020.pdf

The 1099-NEC can be accessed at: https://www.irs.gov/pub/irs-pdf/f1099nec.pdf

The 1099-MISC can be accessed at: https://www.irs.gov/pub/irs-pdf/f1099msc.pdf

Disclaimer:

The information provided in this article is for educational purposes.  This article was designed to provide accurate tax education information.  Farm managers are encouraged to seek the assistance of a qualified tax professionals with the completion of their taxes.

Agricultural & Natural Resources Income Tax Issues Webinar

by: Barry Ward, Director, OSU Income Tax Schools &  Julie Strawser, OSU Income Tax Schools

Tax practitioners, farmers and farmland owners are encouraged to connect to the Agricultural and Natural Resources Income Tax Issues Webinar (via Zoom) on Dec. 18 from 8:45 a.m. to 3:30 p.m. The event is sponsored by Ohio State University Income Tax Schools and Purdue University Income Tax Schools.

The webinar focuses on issues specific to farm tax returns related to agriculture and natural resources and will highlight timely topics and new regulations related to COVID-related legislation.

The program is an intermediate-level course for tax preparers whose clients include farmers and rural landowners. Farmers who prepare and file their own taxes will also benefit from the webinar.

Topics to be addressed and discussed during the Ag Tax Issues webinar include:

COVID-19 RELIEF FOR AGRICULTURAL BUSINESSES

TIMELY TAX ISSUES IMPACTING AGRICULTURAL PRODUCERS

QBI ISSUES FOR FARMERS AND LANDOWNERS

RETIREMENT AND SOCIAL SECURITY CONSIDERATIONS FOR FARMERS

FORM 4797, SALE OF BUSINESS PROPERTY

LIKE-KIND EXCHANGE ISSUES IMPACTING FARMERS

GETTING OUT OF THE BUSINESS OF FARMING

CURRENT UNICAP RULES FOR ORCHARDS AND VINEYARDS

TAX ISSUES ARISING UPON THE DEATH OF A FARMER

The cost for the one-day school is $150, and applications have been made for the following continuing education credits:

  • Accountancy Board of Ohio, CPAs (6 hours)
  • Office of Professional Responsibility, IRS (6 hours)
  • Supreme Court of Ohio, Attorneys (5.25 hours)

Registration includes the Agricultural Tax Issues Workbook. The deadline to register is Dec. 8 to ensure participants will receive the workbook in the mail before the workshop. The live webinar will also feature options for interaction and the ability to ask questions about the presented material.

More information on the workshop, including how to register, can be found at go.osu.edu/agissues2020

Contact Barry Ward at 614-688-3959, ward.8@osu.edu or Julie Strawser at 614-292-2433, strawser.35@osu.edu with questions.

Three Part Webinar Series to Help Ohio Dairy Producers Mitigate Price and Income Risk

COLUMBUS, Ohio – Dairy producers in Ohio and across the country have faced a turbulent year for milk prices, input costs, and income.

Like other commodities, dairy product supply chains were stressed during the initial stages of the global Coronavirus pandemic. Milk prices have improved since the lows of April and May, but price and income risk remain major concerns of producers. Organizers from The Ohio State University’s College of Food, Agricultural, and Environmental Sciences in partnership with the Ohio Dairy Producer’s Association are hosting a free three-part webinar series November 5, 17, and 24 from noon to 1:00 p.m. EST. to prepare producers to mitigate these risks.

Ohio’s Federal Milk Marketing Order Class III milk price fell to a low of $12.14 per hundredweight in May before climbing to $24.54 per hundredweight in July. However, Class III prices do not always reflect the price received at the farm. Producer Price Differentials (PPDs) can increase or decrease the final price paid to producers based on factors such as how the milk is used – bottled for fluid consumption or manufactured into cheese and other dairy products- and how much milk is pooled in the Federal Order system. For Ohio dairy producers, the PPDs fell to a previously unseen level of negative $8.02 per hundredweight in July.

“For Ohio’s dairy farms, that meant that instead of seeing $24.54 as the base price in their July milk checks, we saw $16.52 per cwt.  This followed a similar scenario in June, where a $21.04 Class III price was reduced by a negative $7.05 PPD which led to a pay price starting at $13.99 per cwt.  Prices at these levels are below the cost of production for the vast majority of Ohio’s dairy farms”, said Dianne Shoemaker, Associate Professor and OSU Extension Field Specialist of Dairy Production Economics said.

Furthermore, feed costs- the largest costs at 40-60 percent of an operation’s total costs- can also be highly volatile and impact final returns substantially. Corn, soybean meal, and forage all had large price swings in 2020. As milk prices on the futures market have recovered so have the prices for feed. Soybean meal prices are currently the highest since May 2018.

Ben Brown, Assistant Professor of Agricultural Risk Management in the Department of Agricultural, Environmental, and Development Economics said “2020 is a year like one we have never seen for markets and policy”, adding “it was difficult giving farm management advice to producers because conditions and policy were changing at a pace that seemed like hourly”.

The good news is that there are risk management options available to dairy producers and the organizers say their main goals of the webinar series are to bring awareness of key issues facing the dairy sector, provide a current dairy market outlook, offer educational training on public and private risk management tools, and encourage producer action either through follow-up conversations or practice implementation.

One of those risk management tools is the Dairy Margin Coverage (DMC) Program offered through the Farm Service Agency (FSA). The program allows producers to buy protection against coverage levels of their milk margin- the difference between the milk price and feed costs. The program does cost producers a premium and enrollment is required during a set period- usually in November and December of the prior year. For 2021 coverage, that deadline is December 11, 2020 through the local FSA office.

In December 2019, some of the best forecasts were showing milk margins above the highest coverage levels given current futures prices for milk and feed. Futures prices are an estimation of prices later given what the market knows now. In December 2019, the market was not expecting a global pandemic. As a result, many producers did not participate in DMC during calendar year 2020 and exposed themselves to downside income risk. The DMC program for 2021 along with other price and income risk management tools will be covered during the webinar series.

The series will start on Thursday November 5, with a presentation by Mark Stephenson, Director of Dairy Markets and Policy at the University of Wisconsin, on how milk is priced in the United States and a discussion about factors that led to this years’ unprecedented negative PPDs and volatile milk prices.

Session two, covering domestic and international dairy supply and demand outlooks on November 17, 2020, will be presented by William Loux, Director of Global Trade Analysis at the U.S. Dairy Export Council and Mike McCully, Owner and CEO of The McCully Group.

Concluding the series is the overview of risk management tools including DMC, futures and options, Livestock Gross Margin Coverage, and Dairy Revenue Protection. OSU Extension Educators Chris Zoller- Tuscarawas County and Jason Hartshuh- Crawford County will be joined by Dr. Kenny Burdine, Livestock Extension Economist at the University of Kentucky, for the final session on November 24th.

“This has been a difficult year for dairy farmers, and it’s likely we will see price volatility in future years. Dairy farmers are encouraged to attend to learn about the tools available to minimize price risk as they plan for the future”, said Zoller.

The webinar series is free and open to the public for all three session from Noon to 1:00 PM EST. The virtual nature of the webinars allows flexibility in attendance, but the sessions will also be recorded and posted at farmoffice.osu.edu under past events.

For the complete program and to register, visit go.osu.edu/dairyriskmanagement. For questions, contact Dianne Shoemaker at shoemaker.3@osu.edu, Ben Brown at brown.6888@osu.edu or Chris Zoller at Zoller.1@osu.edu.

 

 

Farmer and Farmland Owner Income Tax Webinar

by: Barry Ward, Director, OSU Income Tax Schools, College of Food, Agricultural and Environmental Sciences, OSU Extension

Are you getting the most from your tax return? Farmers and farmland owners who wish to increase their tax knowledge should consider attending this webinar that will address tax issues specific to this industry. Content focuses on important tax issues and will offer insight into new COVID related legislation.

Mark your calendars for December 3rd, 2020 to participate in this live webinar from 6:30 to 8:30 pm. The event is a joint offering from OSU Income Tax Schools which are a part of OSU Extension and the College of Food, Agricultural and Environmental Sciences and Purdue University Income Tax Schools.  If you are not able to attend the live webinar, all registered participants will receive a link to view the recorded webinar at a time of their convenience. This link will be available through the tax filing season.

The two-hour program is targeted towards owners who file their own farm taxes or simply wish to arm themselves with more tax information that will help them to better plan for tax filing.

Topics to be discussed during the webinar include:

  • Tax Issues related to COVID-related legislations including tax credits, PPP loans, EIDL loans etc.
  • New 1099-Misc and 1099-NEC
  • Tax planning in an unusual year: prevented planting and revenue crop insurance indemnity payments, CFAP payments, etc.
  • Like Kind Exchanges (farm machinery and equipment no longer are eligible for this provision – this is a significant change), how this change may affect state income tax and how this change may affect your Social Security credits and eventual payments
  • Qualified Business Income Deduction, sales to cooperatives, lease income
  • Other topics

The cost for the webinar is $35. To register, go to https://farmoffice.osu.edu/tax/farmer-and-farmland-owner-income-tax-webinar

For more information, contact Julie Strawser at strawser.35@osu.edu, 614-292-2433 or Barry Ward at ward.8@osu.edu

 

OSU Extension Announces Two-Day Tax Schools for Tax Practitioners & Agricultural & Natural Resources Income Tax Issues Webinar

by: Barry Ward & Julie Strawser, OSU Income Tax Schools

Dealing with the tax provisions of the COVID-related legislation for both individuals and businesses are among the topics to be discussed during the upcoming Tax School workshop series offered throughout Ohio in November and December.

The annual series is designed to help tax preparers learn about federal tax law changes and updates for this year, as well as learn more about issues they may encounter when filing individual and small business 2020 tax returns.

The tax schools are intermediate-level courses that focus on interpreting tax regulations and changes in tax laws to help tax preparers, accountants, financial planners and attorneys advise their clients. The schools offer continuing education credit for certified public accountants, enrolled agents, attorneys, annual filing season preparers and certified financial planners.

This is another important year for tax education as the new COVID-related legislation creates some challenges for tax practitioners to prepare tax returns. These schools offer an excellent set of instructors with a great deal of experience and training along with a top reference workbook to prepare tax practitioners to best serve their clients during this ongoing process of incorporating recent tax law changes in completing tax returns.

The workbook alone is an extremely valuable reference as it offers over 700 pages of material including helpful tables and examples that will be valuable to practitioners. Sample chapters of the reference workbook can be found at: https://go.osu.edu/WorkbookChapters.

Topics/chapters to be presented this year during the two-day tax schools include:

Financial Distress, S-Corporation Tax Issues, IRS Issues, Business Entity Issues, Agricultural and Natural Resource Issues, Retirement and Investment Issues, Individual Tax Issues, Business Tax Issues, Trusts and Estates, Rulings and Cases, New Legislation.

This year, OSU Income Tax Schools will offer both in-person schools and online virtual schools.

In person schools:

  1. Lima – November 2-3

Old Barn Restaurant and Grill

3175 W Elm Street, Lima, OH 45805

  1. Fremont – November 4-5

Ole Zim’s Wagon Shed

1375 State Route 590, Gibsonburg, OH 43431

  1. Ashland – November 11-12 SOLD OUT

Ashland University

John C. Meyers Convocation Center

820 Clermont Ave., Ashland, OH  44805

  1. Dayton – November 17-18

Presidential Banquet Center

4548 Presidential Way, Kettering, OH  45429

  1. Columbus – December 10-11 SOLD OUT

Nationwide & Ohio Farm Bureau 4-H Center

2201 Fred Taylor Dr., Columbus, OH 43221

 

Virtual Online Schools:

  1. Webinar (Zoom)

November 9, 13, 16 and 19

Each Day 12:30 – 5pm

Zoom Webinar

  1. Livestream (Zoom)

December 10-11

Livestream of Columbus Tax School Location via Zoom

In addition to the tax schools, the program offers a separate, two-hour ethics webinar that will broadcast Dec. 4 at 10 a.m. The webinar is $25 for school attendees and $50 for non-attendees and is approved by the IRS and the Ohio Accountancy Board for continuing education credit

Register two weeks prior to the school date and receive the two-day tax school early-bird registration fee of $375.  This includes all materials, lunches and refreshments. The deadline to enroll is 10 business days prior to the date of each school. After the school deadline, the fee increases to $425.

Additionally, the 2020 RIA Federal Tax Handbook is available to purchase by participants for a discounted fee of $45 each. Registration information and the online registration portal can be found online at:

http://go.osu.edu/2020tax.

A webinar on Ag Tax Issues will be held Dec. 18 from 8:45 a.m. to 3:30 p.m.

If you are a tax practitioner that represents farmers or rural landowners or are a farmer or farmland owner that prepares your own taxes, this five-hour webinar is for you. It will focus on key topics and new legislation related specifically to those income tax returns.

Registration, which includes the Ag Tax Issues workbook, is $150. Register by mail or on-line at http://go.osu.edu/agissues2020.

Participants may contact Ward at 614-688-3959, ward.8@osu.edu or Julie Strawser 614-292-2433, strawser.35@osu.edu for more information.

OSU Agricultural Lender Seminar Virtual for 2020

For over 30 years, OSU Extension has been providing Ohio’s agricultural lenders with professional development training.  The seminar is scheduled for October, but the venue will be online.  The 2020 OSU Extension Agricultural Lender Seminar will be help on October 21, 2020 from 9:00 am to 12:00 pm.

Lenders from across Ohio and beyond are encouraged to join the seminar.  The planning committee has developed a half-day program that will provide skills and knowledge that will be directly used with their customers as well as information and resources that support the responsibilities of a professional lender.  The seminar will also provide industry awareness of issues that strengthen the lender’s touch with today’s agricultural issues.

“We have national and state experts on the agenda again this year,” says Bruce Clevenger, OSU Extension Educator in Defiance County.  Clevenger leads the team to organize and deliver the training to over 150 lenders annually.

“To provide a national view of the U.S. Ag and Financial Conditions we have David Oppedahl of the Federal Reserve Bank of Chicago on the schedule.” David Oppedahl is a senior business economist in the Economic Research Department. He conducts research on the agricultural sector and rural development, as well as analyzes business conditions and the regional economy. He directs the Federal Reserve District of Chicago’s survey of agricultural banks on agricultural land values and credit conditions and publishes the results in AgLetter—the Chicago Fed’s quarterly agricultural publication.

Other experts and their topics from Ohio State include: Ben Brown, AEDE, Grain Prices and Farm Policy; Barry Ward, OSU Extension, Enterprise Budgets and Returns per Acre; Peggy Hall, OSU Extension, Niche/Small Farm Legal Issues; Rob Leads, OSU Exension, Growing Customer Relationships.

Program pre-registration is required and is now open at: https://u.osu.edu/aglenderseminars/

“The OSU Ag Lender Seminars have provided professional development to new, mid-career and experienced lenders.  About one third of our attendees fall into each of those three tenure categories.”

Clevenger says, “The seminars have traditionally been in-person meetings in Ottawa, Urbana, and Wooster, Ohio, but the 2020 seminars will be accessible state-wide and beyond and will bring the same value that lenders have expected and received for decades.”

For more information about the OSU Extension Ag Lender Seminar, visit https://u.osu.edu/aglenderseminars/ ,contact Bruce Clevenger, OSU Extension Educator at clevenger.10@osu.edu or call 419-782-4771.

 

Expansion of the Coronavirus Food Assistance Program Begins September 21

WASHINGTON, Sept. 18, 2020 – President Donald J. Trump and U.S. Secretary of Agriculture Sonny Perdue today announced up to an additional $14 billion for agricultural producers who continue to face market disruptions and associated costs because of COVID-19. Signup for the Coronavirus Food Assistance Program (CFAP 2) will begin September 21 and run through December 11, 2020.

“America’s agriculture communities are resilient, but still face many challenges due to the COVID-19 pandemic. President Trump is once again demonstrating his commitment to ensure America’s farmers and ranchers remain in business to produce the food, fuel, and fiber America needs to thrive,” said Secretary Perdue. “We listened to feedback received from farmers, ranchers and agricultural organizations about the impact of the pandemic on our nations’ farms and ranches, and we developed a program to better meet the needs of those impacted.”

Background

The U.S. Department of Agriculture (USDA) will use funds being made available from the Commodity Credit Corporation (CCC) Charter Act and CARES Act to support row crops, livestock, specialty crops, dairy, aquaculture and many additional commodities. USDA has incorporated improvements in CFAP 2 based from stakeholder engagement and public feedback to better meet the needs of impacted farmers and ranchers.

Producers can apply for CFAP 2 at USDA’s Farm Service Agency (FSA) county offices. This program provides financial assistance that gives producers the ability to absorb increased marketing costs associated with the COVID-19 pandemic. Producers will be compensated for ongoing market disruptions and assisted with the associated marketing costs.

CFAP 2 payments will be made for three categories of commodities – Price Trigger Commodities, Flat-rate Crops and Sales Commodities.

Price Trigger Commodities

Price trigger commodities are major commodities that meet a minimum 5-percent price decline over a specified period of time. Eligible price trigger crops include barley, corn, sorghum, soybeans, sunflowers, upland cotton, and all classes of wheat. Payments will be based on 2020 planted acres of the crop, excluding prevented planting and experimental acres. Payments for price trigger crops will be the greater of: 1) the eligible acres multiplied by a payment rate of $15 per acre; or 2) the eligible acres multiplied by a nationwide crop marketing percentage, multiplied by a crop-specific payment rate, and then by the producer’s weighted 2020 Actual Production History (APH) approved yield. If the APH is not available, 85 percent of the 2019 Agriculture Risk Coverage-County Option (ARC-CO) benchmark yield for that crop will be used.

For broilers and eggs, payments will be based on 75 percent of the producers’ 2019 production.

Dairy (cow’s milk) payments will be based on actual milk production from April 1 to Aug. 31, 2020. The milk production for Sept. 1, 2020, to Dec. 31, 2020, will be estimated by FSA.

Eligible beef cattle, hogs and pigs, and lambs and sheep payments will be based on the maximum owned inventory of eligible livestock, excluding breeding stock, on a date selected by the producer, between Apr. 16, 2020, and Aug. 31, 2020.

 Flat-rate Crops

Crops that either do not meet the 5-percent price decline trigger or do not have data available to calculate a price change will have payments calculated based on eligible 2020 acres multiplied by $15 per acre. These crops include alfalfa, extra long staple (ELS) cotton, oats, peanuts, rice, hemp, millet, mustard, safflower, sesame, triticale, rapeseed, and several others.

Sales Commodities

Sales commodities include specialty crops; aquaculture; nursery crops and floriculture; other commodities not included in the price trigger and flat-rate categories, including tobacco; goat milk; mink (including pelts); mohair; wool; and other livestock (excluding breeding stock) not included under the price trigger category that were grown for food, fiber, fur, or feathers. Payment calculations will use a sales-based approach, where producers are paid based on five payment gradations associated with their 2019 sales.

Additional commodities are eligible in CFAP 2 that weren’t eligible in the first iteration of the program. If your agricultural operation has been impacted by the pandemic since April 2020, we encourage you to apply for CFAP 2. A complete list of eligible commodities, payment rates and calculations can be found on farmers.gov/cfap.

Eligibility

There is a payment limitation of $250,000 per person or entity for all commodities combined. Applicants who are corporations, limited liability companies, limited partnerships may qualify for additional payment limits when members actively provide personal labor or personal management for the farming operation. In addition, this special payment limitation provision has been expanded to include trusts and estates for both CFAP 1 and 2.

Producers will also have to certify they meet the Adjusted Gross Income limitation of $900,000 unless at least 75 percent or more of their income is derived from farming, ranching or forestry-related activities. Producers must also be in compliance with Highly Erodible Land and Wetland Conservation provisions.

Applying for Assistance

Producers can apply for assistance beginning Sept. 21, 2020. Applications will be accepted through Dec. 11, 2020.

Additional information and application forms can be found at farmers.gov/cfap. Documentation to support the producer’s application and certification may be requested. All other eligibility forms, such as those related to adjusted gross income and payment information, can be downloaded from farmers.gov/cfap/apply. For existing FSA customers, including those who participated in CFAP 1, many documents are likely already on file. Producers should check with FSA county office to see if any of the forms need to be updated.

Customers seeking one-on-one support with the CFAP 2 application process can call 877-508-8364 to speak directly with a USDA employee ready to offer assistance. This is a recommended first step before a producer engages with the team at the FSA county office.

All USDA Service Centers are open for business, including some that are open to visitors to conduct business in person by appointment only. All Service Center visitors wishing to conduct business with FSA, Natural Resources Conservation Service or any other Service Center agency should call ahead and schedule an appointment. Service Centers that are open for appointments will pre-screen visitors based on health concerns or recent travel, and visitors must adhere to social distancing guidelines. Visitors are also required to wear a face covering during their appointment. Our program delivery staff will be in the office, and they will be working with our producers in the office, by phone and using online tools. More information can be found at farmers.gov/coronavirus.

Estimating 2019 Ohio Agricultural Risk Coverage and Price Loss Coverage County Level Payment Rates

By Ben Brown, Department of Agricultural, Environmental and Development Economics, The Ohio State University- August 25, 2020

Click here to access complete article as PDF

Agricultural producers across the United States are periodically allowed to enroll in federal commodity programs offered through the Federal Government. These programs contribute to a public safety net protecting against variations in year to year revenue due to reductions in production, price or both. Since the 1930s, Congress has authroized a federal Farm Bill every 5-7 years providing a variety of programs to producers, agribusinesses, landowners, and consumers. Economic conditions, producer preferences, world integration, and political appetite have influenced the federal safety net over the last 90 years causing introduction, implemetnation, and in some cases repeal of programs. The current suite of Title 1. commodity programs authroized in The Agricultural Adjustment Act of 2018 (2018 Farm Bill) includes: two revenue protection programs for row crop producers through Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs, Marketing Assistance Loans (MAL), and programs for dairy and sugar producers. In some cases an election must be made between programs to complete enrollment. This article estimates county based ARC and PLC payments for enrolled Ohio producers for the 2019 program year, which ends September 30, 2020. In the case payments are triggered, distribution to producers will happen later in 2020 calendar year.

Introduction

Enrollment dates for federal commodity programs depend on specifics in the implementing documents, but regularly occur every fiscal year. Election into programs does not have to match enrollment. For instance, the 2018 Farm Bill allowed producers one election period between ARC and PLC for 2019 and 2020 program years combined (September 1, 2019- March 15, 2020), but had two separate enrollment periods (program year 2019: September 1, 2019- March 15, 2020 and program year 2020: October 1, 2019- June 30, 2020). For 2021, 2022 and 2023 program years, enrollment and election periods will happen simultaneously (October 1- March 15). Producers will also be allowed to adjust their elections between ARC and PLC starting in the 2021 program year (October 1, 2020- March 15, 2021.) Payments are calculated and distributed at the conclusion of the program year.

The ARC program provides shallow loss revenue protection using yields and national Marketing Year Average (MYA) prices to calculate a historical revenue benchmark. Payments are triggered when the product of current year yields and the commodity specific national MYA price falls below 86% of the historical benchmark. Producers have the option between two versions of ARC: ARC-Individual (ARC-IC) and ARC-County (ARC-CO). Yields provided by invidual Farm Service Agency (FSA) farm numbers are used for ARC-IC; whereas, county area yields are used for ARC-CO. The PLC program is a shallow loss protection program using an nationwide effective reference price per commodity as the benchmark. PLC payments trigger when the national MYA price falls below the effective reference price. More information about ARC and PLC program mechanics can be found in The Ohio State Unviersity’s Guide to the 2018 Farm Bill Commodity Programs (Brown, Griffith, and Zoller,  2019).

Data and Methodology

The payment rates presented in this article are estimates calculated by the author as of the published date. Official ARC-CO and PLC payment rates are released by FSA typically in October of the following year. Payments to FSA farmer numbers enrolled in ARC-IC are individual to the farm and cannot be estimated on a county wide basis. Noteworthy, the 2018 Farm Bill blends ARC-CO yields across county lines based on share of acres enrolled by that FSA Farm in each county.

Yields

Historical yields (2013-2017) for ARC-CO are provided by FSA. The 2019 program year is the first-year historical yields were trend adjusted, as the 2014 Farm Bill used reported yields in the historical benchmark calculation. County yields used in this article for ARC-CO are author calculations using 2019 Risk Management Association (RMA) area yields weighted by irrigation practice. A previous article explains these yield estimates (Brown, 2020). County yields may differ from these estimates, as FSA reserves the right to adjust ARC-CO yields.

For the PLC program, the national payment rate per bushel is multiplied by the individual FSA farm yield on file. Producers have the option to update their FSA farm yields by commodity for program year 2020 and any future years or programs using these values up to September 30, 2020. More information on PLC Yield Updates can be found in the OSU Farm Bill Handbook. For program year 2019, PLC yields match FSA farm yields used under the 2014 Farm Bill.

National Prices

National MYA prices are not official for the 2019/20 marketing year for all commodities. Wheat has a marketing year that runs June 1- May 31, whereas corn and soybean have marketing years that run September 1- August 31. National MYA prices are calculated by multiplying the monthly commodity price received by producers and the percent of the crop estimated to have been marketed that month. The national MYA is often higher than producer prices in areas with relatively weak basis values and lower than producer prices in areas with relatively strong basis values. The estimated MYA prices used in this report are calculated by using National Agriculture Statistics Service reported prices for months available: June through May on Wheat and September through June for corn and soybeans. Futures prices with a national average basis adjustment are used for July and August in the case of corn and soybeans. All months are then multiplied by a 5-year average marketing weight. The estimated national MYA prices used for ARC and PLC are included in Table 1.

The 2018 Farm Bill created commodity specific effective reference prices building on the reference prices congressionally set in the 2014 Farm Bill. Effective reference prices for program year 2019 are included in Table 1.

 Table 1. 2019 Effective Reference Prices and Estimated 2019-20 Market Year Average Prices

 

2018 Statutory Reference Price 2019 Effective Reference Price 2019/20 Market Year Average Price PLC Payment Rate ($/bu.)
Corn $3.70/bu. $3.70/bu. $3.58/bu. $0.12/bu.
Soybeans $8.40/bu. $8.40/bu. $8.60/bu. $0.00/bu.
Wheat $5.50/bu. $5.50/bu. $4.61/bu. $0.89/bu.

2019 Corn ARC-CO and PLC Estimates

Figures 1, 2, 3, and 4 illustrate estimated corn ARC-CO and PLC payment rates per county. The payment rates listed have been adjusted to pay out on 100% of a producer’s eligible base acres. Without the adjustment, producers would need to multiply their eligible base acres by 85%. Payments have also been reduced by an anticipated government sequestration of 6.8%.

Illustrated in Figure 1 are the rates for Ohio ARC-CO corn payments for those counties with no separation in irrigation practices. As mentioned earlier, some counties have both an irrigated and nonirrigated ARC-CO program. Four Ohio counties have both an irrigated and nonirrigated corn program: Champaign, Pickaway, Ross, and Williams. The payment rates for these counties by irrigated and nonirrigated yields are illustrated in Figures 2 and 3, respectively. Thirty Ohio counties are expected to trigger ARC-CO corn payments with an average payment of $33/eligible corn base acre with a range of $0-$66 per acre.

 

Ohio corn PLC estimated rates per county are illustrated in Figure 4. As a reminder PLC rates are sensitive to the MYA price as every $0.05 per bushel change in the MYA price translates to $8-$10 per acre. PLC rates are multiplied by the FSA farm yield instead of the county average yield used by the author. County average yields are meant to represent all farms in a county but will be low for some farm numbers and higher for others. With an estimated $0.12 per bushel payment triggered across the country, most Ohio producers should see a payment between $8-$13 per acre payments, a much smaller range in payments compared to ARC-CO. Ohio corn participation rates between ARC and PLC are not known, but 76% of producers nationwide elected PLC for program year 2019. University decision tools ubiquitously forecasted large 2020 program year PLC payments with few expecting 2019 program year payments. Reduction in ethanol production due to COVID-19 lowered the 2019/20 MYA price and increased the probability of PLC payments.

2019 Soybean ARC-CO and PLC Estimates

Figures 5, 6, 7, and 8 illustrate estimated soybean ARC-CO and PLC payment rates per county. Like corn, payments have been adjusted to apply on 100% of base acres and a 6.8% sequestration.

Illustrated in Figure 5 are the rates for Ohio ARC-CO soybean payments for those counties with no separation in irrigation practices. Eleven Ohio counties have both an irrigated and nonirrigated soybean program: Allen, Auglaize, Champaign, Hardin, Putnam, Seneca, Shelby, Union, Ver Wert, Williams, and Wyandot, represented in grey. The payment rates for these counties by irrigated and nonirrigated yields are illustrated in Figures 6 and 7, respectively. Fifty Ohio counties are expected to trigger ARC-CO soybean payments. Of those counties triggering payments, the average payment is $26/eligible base acre with a range of $0-$48. Three counties (Belmont, Monroe and Noble) did not have sufficient yield data or base acres enrolled in ARC-CO.

It is not likely soybeans will trigger a PLC payment in program year 2019.  With an effective reference price of $8.40, the current forecasted MYA price of $8.60 is $0.20 above the required threshold. This will not be surprising to many producers as 14% of soybean base acres were enrolled in PLC, whereas 86% were enrolled in either ARC-CO or ARC-IC. During the Farm Bill election period, university decision tools did not forecast PLC payments in 2019 and only a small change of payments for program year 2020. Anecdotally, producers expressed a greater likelihood their county yields would come in lower than the historical benchmark for ARC-CO compared to the MYA falling below the effective reference price.

2019 Wheat ARC-CO and PLC Estimates

Figures 9 and 10 illustrate estimated wheat ARC-CO and PLC payment rates per county, respectively. Like corn and soybeans, payments have been adjusted to apply on 100% of base acres and a 6.8% sequestration.

Illustrated in Figure 9 are the rates for Ohio ARC-CO wheat payments. There are no Ohio counties that have both an irrigated and nonirrigated ARC-CO wheat program. County yields are weighted based on the share of irrigated and nonirrigated insured aces to create a yield for all practices. Seventy-three Ohio counties are expected to trigger ARC-CO wheat payments. Of those counties triggering payments, the average payment is $32/eligible base acre with a range of $0-$40. Twelve Ohio counties (represented in black) have missing yield data or do not have enrolled base acres of wheat for program year 2020.

 

Figure 10 illustrates the estimated wheat PLC county payment rates. Given that the marketing year for wheat has concluded, it is all but certain the national MYA wheat price will fall below the effective reference price of $5.50 per bushel. The estimates used in this report estimate a national MYA price of $4.61/bushel while the World Agricultural Outlook Board in the August World Agricultural Supply and Demand Estimates forecast a MYA price of $4.58 per bushel. A $0.03 per bushel difference amounts to roughly a $1.60 per acre payment difference. The estimates for wheat payments between ARC-CO and PLC are similar in size. University decision aides forecasted a large PLC payment for program year 2019 and potentially for program year 2020. While there was the possibility wheat would trigger ARC-CO payments it was not as large as the probability for PLC.  Nationwide 93% of producer chose PLC for eligible wheat base acres vs 7% for ARC.

Conclusion

This article estimates county level Agricultural Risk Coverage and Price Loss Coverage payment rates for program year 2019, which are expected to be announced by the Farm Service Agency later in calendar year 2020. These estimates are calculated using Risk Management Agency area yields and forecasted market year average prices in August of 2020.

  • Yields and prices may differ from these assumptions, but these estimates should provide producers with an idea of cash flow from 2018 Farm Bill authorized programs.
  • Farms with acres in multiple counties will have a blended ARC-CO yield for all enrolled acres within a specific commodity and FSA farm number. The entire data file with historical benchmarks is posted at go.osu.edu/farmbill2019
  • National participation rates show producers favored PLC for corn and wheat, but ARC for soybean base acres.
  • County corn payments are higher for ARC-CO than PLC, but not all counties are expected to trigger an ARC-CO payment. For program year 2019, all county units are expected to trigger a PLC payment while thirty county units out of ninety-three are expected to trigger ARC-CO payments.
  • No county unit is expected to trigger a PLC soybean payment while fifty out of one hundred are expected to trigger ARC-CO payments.
  • Wheat payment frequency and size are approximately the same between ARC-CO and PLC, but the majority of wheat base acres are enrolled in PLC.
  • As a reminder, enrollment for the 2021 program year starts October 1, 2020 and ends March 15, 2020.

References

Brown, B. “Evaluating Ohio Yield Possibilities for 2019 Agricultural Risk Coverage County Level Payments.” AEDE Agricultural Report 2020:014, Department of Agricultural, Environmental, and Development Economics, The Ohio State University, August 25, 2020. https://aede.osu.edu/sites/aede/files/imce/images/2019%20Ohio%20RMA%20Yields.pdf

Brown, B., M. Griffith, C. Zoller. “The Ohio State University’s Guide to the 2018 Farm Bill Commodity Programs.” AEDE Agricultural Report 2019:012 Department of Agricultural, Environmental, and Development Economics, The Ohio State University, November 12, 2019. https://aede.osu.edu/sites/aede/files/imce/images/Farm%20Bill%20Decision%20Central%20Guide_0.pdf

United States Department of Agriculture- Farm Service Agency. “2019 Covered Commodity Contract Base Acres (and Percentage) on Enrolled Farms by Program by Commodity.” https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/arc-plc/2019/pdf/enrolled_base_2019.pdf

United States Department of Agriculture- Farm Service Agency. “2019 Effective Reference Price Calculations.” August 12, 2020. https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/arc-plc/2019/pdf/2019_ERP.pdf

Specialty Crops Available for CFAP Funding

by:  Chris Zoller, Extension Educator, ANR Tuscarawas County

The United States Department of Agriculture (USDA) announced earlier this year the Coronavirus Food Assistance Program (CFAP).  Developed earlier this year, CFAP is intended to assist farmers who suffered economic losses as a result of the COVID-19 pandemic. Initial payments were made available to growers of certain non-specialty and specialty crops, dairy, livestock, and wool producers.  On July 9, 2020 USDA announced additional specialty crops eligible for economic assistance.  The list of specialty crops includes:

  • alfalfa sprouts, anise, arugula, basil, bean sprouts, beets, blackberries, Brussels sprouts, celeriac (celery root), chives, cilantro, coconuts, collard greens, dandelion greens, greens (others not listed separately), guava, kale greens, lettuce – including Boston, green leaf, Lolla Rossa, oak leaf green, oak leaf red and red leaf – marjoram, mint, mustard, okra, oregano, parsnips, passion fruit, peas (green), pineapple, pistachios, radicchio, rosemary, sage, savory, sorrel, fresh sugarcane, Swiss chard, thyme and turnip top greens.

The USDA also expanded CARES Act funding for sales losses for seven currently eligible commodities – apples, blueberries, garlic, potatoes, raspberries, tangerines and taro – because USDA found these commodities had a five percent or greater price decline between mid-January and mid-April as a result of the COVID-19 pandemic. Originally, these commodities were only eligible for marketing adjustments.

How to Apply for CFAP

Producers have several options available to apply for CFAP funding:

  • The online portal, accessible at farmers.gov/cfap, allows producers with secure USDA login credentials—known as eAuthentication—to certify eligible commodities online, digitally sign applications and submit directly to the local USDA Service Center.
  • Complete the application form using the Farm Service Agency CFAP Application Generator and Payment Calculator found at farmers.gov/cfap. This Excel workbook allows customers to input operation specific to populate the printable application form. The application form needs to be signed and submitted to a USDA Service Center.
  • Download the AD-3114 application form from farmers.gov/cfap and manually complete the form to submit to a USDA Service Center by mail, electronically or by hand delivery to an office drop box. In some limited cases, the office may be open for in-person business by appointment.

Where to Apply for CFAP Funding

Eligible growers need to contact their local Farm Service Agency (FSA) office.  Visit farmers.gov/coronavirus/service-center-status  to check the status of your local FSA office.   New customers seeking one-on-one support with the CFAP application process can call 877-508-8364 to speak directly with a USDA employee ready to offer general assistance. This is a recommended first step before a producer engages the team at the FSA county office at their local USDA Service Center.  If you have been enrolled in previous FSA programs, you may contact your local FSA office to discuss CFAP program eligibility and begin the enrollment process.

Additional Information

If you are interested in learning more about CFAP for specialty crops, please visit https://www.farmers.gov/cfap/specialty.

Tax Value of Farmland Expected to Drop

There’s a bit of good news for Ohio farmers to counter the bad news caused by COVID-19, as well as by last year’s historic rain. In counties scheduled for property value updates in 2020—about half of Ohio’s 88 counties—the average value of farmland enrolled in the Current Agricultural Use Value (CAUV) program should be about 40% lower than 2017–2019, or about $665 per acre.

That’s according to projections by researchers at The Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES).

The same projections say that in counties due for property value updates in 2021—another quarter of Ohio’s counties—average CAUV values should be about 25% less than 2018–2020, or about $760 per acre.

The declines should mean lower property taxes, on average, for most of the farmers in those counties.

The projections were published in a May report by postdoctoral researcher Robert Dinterman and Ani Katchova, associate professor and farm income enhancement chair, both of CFAES’ Department of Agricultural, Environmental, and Development Economics.

“Less money paid in property tax will help reduce farmers’ costs and allow them to keep a greater share of the revenues they bring in,” Dinterman said.

But he noted that CAUV values are “not exactly equal to the property tax someone will pay.” A farm’s total property tax bill, he said, also depends on how many taxing jurisdictions the land is subject to and the tax rate, or millage rate, within those jurisdictions.

There could “certainly be a few cases where an agricultural landowner sees a large reduction in their CAUV value but has a corresponding increase in their millage rate and ends up paying the same in property taxes,” Dinterman said.

Ohio counties update their property values, including their CAUV values, every three years on a rotating basis, with about a third of the counties seeing updates every year. The new values then apply for the next three years.

The state’s CAUV program allows farmland to be taxed based on its agricultural value instead of its full market value. Enrollment in the program, which is voluntary, “normally results in a substantially lower tax bill for working farmers,” an Ohio Department of Taxation website says.

A county’s CAUV values are based, roughly, on a formula using net farm income data from over the past five to seven years. More specifically, the data comes from a hypothetical farm producing soybeans, corn, and wheat during that period.

“In a nutshell, CAUV values are high when the previous five to seven years of farm income were high. CAUV values are low when the previous five to seven years of farm income were low,” Dinterman said.

Farmers had a boom in net income from about 2010-2014, which was partly a major cause of rising CAUV values in the past, he said.

“So now that we have been in a prolonged period of what people might consider low farm incomes, those values start to enter the CAUV formula and in turn lower their values,” Dinterman said.

“Clearly a farmer does not want to have low income, but a bit of good news that comes with that is that at least their tax bills will be a bit lower,” he said.

Dinterman and Katchova’s report also states that based on early projections, the quarter of Ohio counties scheduled for CAUV updates in 2022 will see only a small decrease in their values, about 1%, to $880 per acre.

That ties in with the researchers’ expectation that the CAUV declines won’t continue.

“We should give a bit of a warning to farmers that the recent trend we’ve seen in reduced CAUV values has plateaued,” Dinterman said.

The reason: a major legislative change to the CAUV formula—related to how capitalization rates are calculated—was started in 2017. The change was phased in, and 2020 marks the end of the phase-in.

“That phase-in over 2017–2020 helped ease into the lowest CAUV values we’ve seen since about 2012,” Dinterman said. “We’re likely to stay within a range of about $650–$900 for average CAUV values in the foreseeable future.”

Read the report at go.osu.edu/may2020cauv.

FOR MORE INFORMATION CONTACT:

Kurt Knebusch
knebusch.1@osu.edu
330-263-3776

SOURCE(S):
Robert Dinterman
dinterman.1@osu.edu

Ani Katchova
katchova.1@osu.edu