To our customer-owners and friends,

During this evolving coronavirus pandemic, our priority remains to safely serve you. In following the Centers for Disease Control’s (CDC) guidance, we’re limiting our in-person interaction between our customers and employees for the next two weeks. Our branch offices will operate with limited staffing and the majority of our Horizon team will serve you from home offices.

Our team remains committed to helping you over the phone, via email or text and will send documents electronically or through the mail to you to continue business. As a reminder, you also can access your accounts and services without needing to visit a branch by using our digital banking platform, Digital Banking, or by calling us at 1-800-998-5557 for assistance. While our staff is dedicated to serving you, please afford us some extra patience in our response times. 

We understand these are stressful times for your families and businesses. Our member assistance program (MAP) offers support and resources to address personal or work-related challenges and concerns. It’s confidential and free. Help is available 24/7, 365 days at 800.633.3353.

While we’ve canceled our patronage parties in response to coronavirus prevention, your patronage checks will mail in early April. We hope the check’s arrival will be a bright spot in the coming days.

We’ll keep monitoring the situation and changing our approach as needed. You depend on us and we’ll continue to serve you.

No matter if you are a full- or part-time farmer, agricultural producers have a number of capital needs to make their operations successful.

While often overlooked, leases can be a valuable option by providing tax advantages, little or no down payments and lower monthly payments. Oftentimes, the real value for a farmer lies in the use of the asset and not the ownership. But conventional loans also have their benefits, most notably being that the asset is owned and can be reflected on your balance sheet. Other benefits of loans and leases include:

Benefits of a loan

• Payment timing and terms are structured to fit your operation
• Owned facility/equipment are your assets
• Asset is depreciated on your tax return
• If you are an Horizon Farm Credit borrower, patronage can be earned based on the amount of interest you pay

Benefits of a lease

• Working capital and your operating line is preserved
• Cash flow is improved with lower payments
• Tax benefits are maximized with accelerated write-off
• 100% financing is available

For your next equipment or building need, in addition asking your lender about a conventional loan, ask about a lease as well.

Depending on your unique situation, one option may be more favorable than the other, and you may want to consult with your accountant or other tax advisor to get his/her opinion, too.

We recently interviewed Ryan Davis, director of credit administration with Horizon Farm Credit. As the third podcast in the series The Country Life: Buying Land, Ryan discussed the basics of credit scores and why they are important from a lender’s perspective.

First, could you help us understand what is a credit score and why is it important?
A credit score is a numerical representation of the creditworthiness of an individual based on statistical analysis of their credit files. Lenders use credit scores to help determine the likelihood of timely loan repayment. Credit scores are utilized in lending decisions for various types of loans, from a store credit card to your home mortgage. At Horizon, we review credit scores as one component of our lending process. 

Everyone should know and understand your individual credit score so any time you need to borrow money, you have a good idea of your likelihood of approval. Credit scores are calculated using the Fair Isaac Corporation credit-scoring model (or “FICO model”, if you’ve heard that acronym). Credit Scores are published by each of the three major credit reporting bureaus: Equifax, Experian and TransUnion. FICO scores can range from 300 to 850. The higher your score, the better, as high scores typically represent a lower credit risk to the lender.

Now that we have a better understanding about what a credit score is, what factors impact a credit score?
Your credit score is constantly changing based on a variety of factors. Fair Isaac doesn’t provide the exact formula, but the five areas that impact your credit score include:

• Payment History – Have you paid your loans or credit cards on time? If delinquencies occurred, the amount past due and the severity have an impact. If you miss a payment, get current and stay current.
• Amounts Owed – What is your total amount of credit outstanding, the number of accounts you have and the balances of those accounts relative to the maximum limits? If you have credit cards or a line of credit, keep your balance low. Having credit accounts and owing money doesn’t necessarily mean you are high risk. In fact, if managed properly, debt can actually improve your credit score.
• Length of Credit History – How long have your accounts been open with creditors? Maintaining a proven track record and long-term relationships with creditors makes it easier to identify payment patterns.
• Types of Credit – Do you have multiple different types of debt? Having a good mix of debt can improve your credit score (for example, an auto loan, a credit card, a home mortgage). However, don’t open accounts just to have a good mix! Specifically, having credit cards and managing them responsibly boosts your score. 
• New Credit Applications – Have you had a lot of recent credit applications? Or for large amounts? There is a window of time to “shop around” for the best deal, but a lot of new credit applications can negatively impact your score.

Out of these factors, Payment History and Amounts Owed impact your score the most, and represent roughly 65% of your score. 

What steps can a person take to improve their credit score?
First, it’s important to monitor your credit report, on at least an annual basis, to ensure the information is accurate, and you know what’s being reported. Errors are not uncommon on credit reports because of similar names or social security numbers, medical billing errors or even a lender typing in information incorrectly. You can pull your credit report for free every 12 months at annualcreditreport.com from each of the three major credit bureaus, though this does not include your FICO score.

In terms of actually improving your score, I would focus on two primary factors: always make your payments on time and keep your utilization rate low. Delinquent payments and collection accounts can have a major impact on your score. Late payments or other credit issues will remain on your credit report for up to seven years.

Be sure to maintain low balances on credit cards or other revolving accounts and manage them responsibly (keep your utilization rate low). You should only open new credit accounts as needed; having too much available credit can also hurt your score.

Is there anything else you’d like to share with our listeners today?
I would emphasize the importance of communicating with your lender if you are having problems making your payments or anticipate problems in the near future. Many times your lender can work with you to ensure your credit is not adversely impacted if you are proactive in your communication with them. This is especially true in the current environment as many lenders have developed programs to help their borrowers through any negative impacts from the current pandemic.

The Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL) and Coronavirus Food Assistance Program (CFAP) – you have likely heard about or encountered these programs, and maybe even applied for them, received funds and aren’t sure the tax implications. 

First, it’s important to remember that the year isn’t over yet - who knows what will come next? As accountants, we want to help you tax plan as accurately as possible and consider the best available options. The reality is that the details on how these programs will be treated are still unclear.  That said, let’s break down what we know and can work with for now, starting easy and working our way to the more complicated.   

CFAP is technically a “disaster” payment, similar to crop insurance. For that reason, we question whether it can be deferred for one year like crop insurance. One clear detail points to a “no” answer: only proceeds that are related to damage can be deferred, not proceeds related to price (CFAP is price-based).  Since there is no final IRS ruling, the deferment door might remain open for specialty crops that go straight to market at harvest. To be safe, don’t count on deferring CFAP round 1 or the recently announce CFAP 2 payments.  Application for CFAP 2 is open through Dec 11, 2020.  CPFAP payments are treated like Ag Program Payments that are taxable in the year received, and look out for a 1099 from the USDA/FSA.

EIDL will have a relationship with the PPP if your PPP loan is forgiven. Loan proceeds are not recognized as income, and principal repayment is not an expense. Part of the EIDL program included an “advance,” or a grant that does not require any repayment. A number of folks decided take the grant and forget about the additionally approved loan funds (which are not income, to clarify). By itself, without any PPP loan funds in the picture, the “advance” EIDL funds received will be considered taxable income.  

If PPP is in the picture and loan forgiveness is granted (most recipients aren’t at that point yet), the “advance” portion of the EIDL program will count against your loan forgiveness amount (think of it as not being able to double dip on free money). The issue then shifts to the taxable treatment of the PPP forgiveness amount. For example: You received $10,000 in EIDL advance funds (no repayment required) and $100,000 in PPP loan funds. When you apply for PPP loan forgiveness, the most forgiveness you are eligible for is $90,000. The remaining $10,000 stays as a PPP loan. There are two parts to dealing with EIDL “advance” funds:  they are taxable income and they will lower your PPP loan forgiveness dollar for dollar.  

Congress passed the CARES Act with clear intent that PPP loan forgiveness would be excluded from gross income for the recipient. What was not addressed in the CARES Act was whether payroll and other expenses covered by PPP funds would follow Internal Revenue Code (Code) or not. To summarize Code as plainly as possible, if you are not going to claim the income (forgiven debt), you can’t claim the associated deductions. At this writing, without action from Congress, you can’t claim your payroll expenses up to the amount that your PPP loan is forgiven.  

This is a challenge for accountants because we want to make sure your gross wages expense on your tax return matches your W3 Wage Transmittal (the form that summarizes all your W2s for the Social Security Administration). With a longer period allowed (up to 24 weeks) to use the PPP funds, it makes sense to wait until early 2021 to apply for PPP forgiveness and use those 2020 payroll forms to further document the forgiveness application. The big question is whether we can use this inconsistency between Code and the intent of the CARES Act to benefit us in tax savings by (1) maintaining/carrying the PPP loan into 2021, (2) claiming all the payroll/other eligible expenses for 2020 and (3) applying for debt forgiveness in 2021 and showing that income in 2021.

Potentially, there is room for interpretation. It is similar to the strategy many farmers use of prepaying next year’s crop inputs in December, but not selling last year’s crop until March. There are many pieces to consider around the timing of PPP loan forgiveness, and everyone’s situation is unique. You should seek guidance from a tax professional on when to file your PPP loan forgiveness application and stay tuned for any post-election changes from Congress before year-end. 

Does your head hurt yet? There are many variables here with different sources of funds in 2020 that are new to businesses and farms. On top of that, how they are treated (income or non-income) depends on even more variables. These “Big Three” are the obvious to consider during tax planning this year with your accountant, but how they work together with the other moving pieces of your business or farm is just as important to understand. While 2020 has had enough surprises already, you don’t have to let your tax situation be another.   

We recently interviewed Larry Labowski, a Farm Credit loan officer. A year-end financial check-up has many benefits for farm businesses.

Larry discussed what should be included in a year-end check-up and resources available to help.

Could you share the couple of key items that you feel are important for farm businesses to update during this time and why they are important?
Understanding the current state of your business helps you understand your performance and make a plan for the next year. I’ve found that farms and businesses that take the time for a financial review are better prepared for what may impact their operation in the future.

The first step of a year-end financial checkup is to update your balance sheet, both a personal balance sheet and business balance sheet. A balance sheet is a snapshot of your business at a point in time. Creating a balance sheet on Dec. 31 each year enables you to see how your farm operation has changed. Did your net worth grow or did it regress? If it grew, was it from earnings or asset valuations? If equity is trending downward, how much is the business and/or family willing to lose? Keep in mind that a balance sheet to monitor your operation’s performance may be different than your balance sheet to secure a loan, which often includes your personal assets and liabilities. To measure a business’s performance, the balance sheet should include assets and liabilities only for the business. This requires you to consider who owns each piece of equipment and parcel of land and then determine if it goes on a business or personal balance sheet. These values impact many indicators that are important to evaluating financial performance.

Profitability is critical to the success of any business. To best assess your profit from the previous year, create an accrual-adjusted income statement, which adjusts for items including inventory and prepaid expenses. An accrual-adjusted income statement allows you to generate a cost of production on a per unit basis to use in other areas of decision-making, including the use of risk management tools such as crop insurance. Understanding your income and expenses is important for tax planning purposes, and especially in a year like 2020 where we’ve had many unexpected factors impacting both. Many times, farmers avoid paying taxes at all costs, but don’t make a tax decision that puts your business in a worse position down the road.

Lastly, take time to complete an operating and capital expenditure (CAPEX) budget for the coming year. Remember that failing to plan is planning to fail. Review your income and expenditures from the past year and put together a monthly budget for your business. For your CAPEX budget, consider the capital investments you will make in the next year and how you will pay for those investments. Budgets are never 100% accurate, but they provide a starting point for planning for the upcoming year. As the year progresses, review and adjust your budget often to reflect what is happening in your business.

Those are some important aspects that farm businesses should consider this time of year, but many operations might be concerned about how to accomplish all of these items. What resources are available to help? 
Yes, tackling all of these items with a year-end financial check-up might be intimidating, especially if you haven’t done them in the past. I encourage you to involve your operation’s key advisors in helping with you. 

Lenders like Horizon are particularly interested in your balance sheet to see how your business fared in the prior year and your budgets for the upcoming year. We have a number of resources including forms and instructional guides to give you background on what to include in these areas. In good and bad economic times, it is always a good practice to maintain open lines of communication with your lender about anticipated capital needs. 

I also encourage farms to engage additional advisors, such as the accountant, feed consultant, crop insurance agent and others who are willing to help. All have a vested interest in the success of your operation and can best advise your business with accurate and up-to-date information.

Is there anything else you’d like to share with our listeners today?
I would like to add about the importance of knowing your own records. At year-end, when you are calculating your accounts payable and accounts receivable, be sure to be as accurate as possible. The most common error that I see is reporting an accounts payable when in fact the expense was deducted in the prior year because they signed a promissory note. In this case, you would be overstating your accounts payable and increasing your accrual adjustment to your expenses and then understating your accrual-adjusted net income. 

But that’s getting pretty deep into the weeds, and it is a great discussion after you start your annual financial check-up.

As the year winds down, now is the time to review your year-to-date records with your accountant to discuss tax projections and options for reducing your tax liability.

One of the tools that may be an option for you is leasing. Leasing can provide an efficient cash flow and serve as a tax management tool.

Machinery, equipment, buildings, grain bins and fleet vehicles are examples of the types of assets that are generally leased. Below are a few benefits of leasing:

Accelerated write off. For example, when you purchase a piece of equipment that would normally be depreciated for seven years, leasing provides an accelerated deduction by allowing the amount of lease payment as a deduction against income. The 4th and 40 rule does not apply to leased assets. The 4th and 40 rule means that when 40% of the assets for the year are purchased in the 4th quarter, the law requires that all assets purchased in the year be depreciated using the mid quarter convention method, which results in a minimal deduction.
Leasing allows for preservation of section 179 for other purchased assets that would qualify for the section 179 expense. The current section 179 expense is limited to $25,000.

Saving cash. Leasing saves working capital that would otherwise be used to purchase assets.
If you have already made your capital purchases for the year, don’t fret, leasing is still an option using the lease buy back option.

If you are interested in more information regarding a lease, please contact your loan officer or local Horizon branch.

To our valued customer-owners and friends,

Horizon Farm Credit would like to take this opportunity to inform you of the steps we’re taking to keep our customer-owners and employees safe, and our systems and services running, in response to the new coronavirus (COVID-19).

We have activated our Business Continuity and Disaster Recovery Plan, which includes a comprehensive response that follows guidance from the Centers of Disease Control and Prevention (CDC) and state and local health agencies in the areas we serve. Our ultimate goal is to ensure that we have a dynamic and appropriate response to the risk caused from this virus.

While the following is not a comprehensive list, our plan calls for:

• Increasing our supplies of disinfecting products, and implementing enhanced sanitizing and cleaning protocols at all of our branch locations.
• Keeping our products and services fully available to you.
• Supporting our customers and employees that are at-risk or have special needs.
• Monitoring the financial markets and discussing options for customer-owners to meet their changing financial needs. 
• Limiting business-related employee travel until the end of April. Instead, we will utilize our teleconference and video conferencing capabilities. 
• Modifying, postponing or cancelling large internal and external meetings until the end of April.
• Postponing events scheduled until the end of April. This includes our planned patronage parties, April 1 – 8, and AgBiz Masters meetings.
• Mailing all patronage checks the first week of April from our headquarters office.
• Monitoring and reducing our on-farm travel as business permits to keep our customer-owners and employees safe. Our staff will be conducting more business over the phone and by mail.
• Enhancing our risk monitoring and management protocols.

During this time of stress and uncertainty, we want to make sure you have access to all the financial services we offer. You can access your accounts and services without needing to visit a branch by using our digital banking platform, Digital Banking, or by calling us at 1-800-998-5557 for assistance.

You can find the latest information on the coronavirus and how to limit your risk of infection by calling the CDC hotline at 1-800-232-4636 or by visiting the CDC website. 

As always, our highest priorities are the health and safety of our customer-owners and employees, as well as the communities we serve. If there’s anything that we can do to assist you, please don’t hesitate to reach out to your loan officer. 

Thank you for the opportunity to serve you. Remember: We’re in this together.

In my travels and engagement through webinars, a number of questions are coming from individuals concerning the future prospects of careers and employment in the agriculture industry.

The current shortage of workers in many areas would certainly build a case. Many of you reading this column have children, grandchildren or a neighboring youngster that may be uncertain about future endeavors. Let’s examine some of the prospects for employment and careers in the agriculture industry.

Approximately 6.7 million people work in the agriculture and food industry, including natural resources. However, when food service and related fields are added, the number increases to 22 million or nearly one in nine workers in the U.S. The growth rate for employment is expected to be 60,000 jobs annually or a 2.6% growth rate.

Regardless of one’s endeavors, the agriculture industry represents a wide span of opportunities. Careers range from the knowledge generators with degrees and advanced degrees, the rapidly growing fields of technicians on the innovative forefront, and to the producers working on the front lines. A young person can expect 10 to 20 changes throughout the employment pathway in a lifetime. One size really does not fit all! From practitioners to entrepreneurs, the ability to adapt and be a lifelong learner and student of the field are critical for success.

The following is some advice for individuals considering the field or changing responsibilities.

• Do not limit yourself. The industry, like yourself, may evolve over time with interest and opportunities. Your agriculture career is not a sprint, but a marathon or journey in an environment of accelerated change. 
• Get comfortable being uncomfortable. The industry competition, consumers and trends that influence the industry will require one to be adaptable and pivot quickly. 
• Think outside the box. This way of thinking can lead to unique opportunities that can make a difference in people’s lives while being compensated monetarily. 

A college or university education is not for everyone; however, a skill set with the mindset of being responsible, accountable and able to work with a diverse group of people are critical skills. 

Organizations such as 4-H, FFA, MANRRS and other leadership programs are difference makers. Exposure to contests, debates and teamwork develops life skills that build confidence and self-esteem for young adults.

Horizon recently released its Forest Products Industry Outlook, a document which provides a current assessment of forest products industry in Pennsylvania.

Thad Taylor, executive loan office and forest products specialist, shared highlights from the Outlook document and his perspectives on the forest products industry. Listen to the full podcast episode with Thad here.

Please share a high level overview of your perspective of market conditions in the forest products industry.
Our Pennsylvania forest products industry faces many challenges right now. The global COVID pandemic and trade-related issues in recent years have created challenges specific to both pricing and demand for many forest products. 

First, Pennsylvania kiln-dried hardwood-grade lumber prices are down about 11% year-over-year versus 2019, and down about 27% from the mid 2018 highs. That reduction is somewhere around $375 per thousand since the high point recently in 2018.

Second, Pennsylvania timber stumpage prices are down about $326 per thousand board feet, which is about 36% reduction since the mid 2018 high. That may sound like some help to the industry from a lumber production and margin standpoint, but that reduction isn't quite enough to offset the $375 per thousand board feet reduction in average lumber pricing. In addition to that, hardwood saw timber stumpage sales happened to be the main product for most of our Pennsylvania landowners who sell standing timber. So, to the extent that stumpage price reduction helps some of our sawmill clients, it certainly hurts some of our standing timberland management clients.

The third item is Chinese tariffs and weaker overall Chinese economic demand. Economists can debate whether the tariffs hurt the Pennsylvania forest products industry or the weaker Chinese economic demand to hurt the industry. I think both happen to hurt our industry, and until the Chinese economy picks back up along with the global economy, I think we're going to have some headwinds for overall foreign demand for Pennsylvania forest products. Our industry is somewhat dependent on foreign demand for our forest products. 

Next, export demand for U.S. hardwood lumber is down about 25% in 2019 compared to 2018, and down another 18% year-to-date, May 2020. That has been a significant impact on lumber demand and pricing in Pennsylvania.

Finally, I'll mention pulp and chip demand. Both of those items are down right now in Pennsylvania and throughout the New England region, mainly because of the types of paper that are produced in the paper mills in this particular region. Both pulpwood and chip demand are down. In addition to that, palette blocking industrial lumber railroad tie markets, which were a bright spot in 2018 and 2019, have started getting tight.

Those are some significant challenges, but not everything in the industry is challenging right now. There are some bright spots. One would be diesel fuel prices, which are a huge part of the cost structure of any logging operation and indirectly, then, part of the cost structure for any sawmill operation. Diesel fuel prices are low right now. They're considerably off their 2018 highs. I think they're down about $0.75/gallon, retail basis since the 2018 high. The logging weather, which has been historically unreliable every spring and summer, has been terrific for both June and July here in 2020. We've had good sunny weather with very little rain. A final bright spot is both sawdust and bark demand, which have been very difficult the past few years, seem to be better right now. Both wood pellet manufacturing is consuming a lot of sawdust and various landscaping projects are also consuming a lot of bark and bark mulch. 

Within the Forest Products Industry Outlook, the document outlines six items on a forest products industry ‘Watch List.’ What is on the Outlook’s Watch List?

There are six items on the Forest Products Industry Outlook Watch List. It’s important to note that they are not all the negatives. They can be some positives or can be anything that we find occupying our mindshare to consider. 

1. COVID-19: The global pandemic has caused disruptions to supply chain. It has changed economic growth substantially. We're in a recession now because of the impact to overall economic activity, and restrictions on movement and purchasing behavior. Those things are a big concern. It's hard for me to make any predictions given just the scope of the unknown and uncertainty that surrounds what might happen next regarding economic performance in response to that.

2. Interest rates: This is a positive. Interest rates are very low right now. The Fed has reduced interest rates to near zero and wants to keep them there. I will say that anytime there is a rapid change in interest rate, it doesn't happen in a vacuum. No matter what the reason for the change in interest rate, there's always going to be some kind of distortion that happens in normal purchasing behavior, in human behavior that follows that change in interest rates. So, we might see asymmetric changes in asset values as people use the low interest rates to take advantage of additional longer-term purchasing opportunities they might not have otherwise made. I say all that to say it, it does create some changes, and disruptions, and distortions to normal purchasing behavior and asset values.

3. U.S. housing starts: U.S. housing starts were on an upward trend going into early 2020 until COVID-19. Since then, both U.S. and Northeast housing starts have fallen off a cliff. As housing goes, the forest products industry tends to have economic performance that responds in lock step with U.S. housing. Until U.S. housing recovers and steadiness returns to the economy from the COVID-19 pandemic, I think housing is going to be a concern area for us.

4. Labor: Labor has been a concern for our industry for many years. This is a decades-long change in the skilled labor force, skilled labor available ability, and simple technological trends in our economy has impacted labor availability. It’s going to continue to be a concern. One of the potential long-term solutions we've seen is that many operations have tended to address their labor concerns by adding additional technological capital or machinery capital.

5. Upcoming U.S. election: Before any election, we tend to see purchasing behavior get a little bit more cautious. We tend to see normal levels of risk taking back off a little bit in the months before any election. That's irrespective of which political party is in power at the time. It’s clear that the upcoming election is on all of our minds and is dampening purchasing behavior and risk-taking behavior.

6. Invasive pests: Within our Forest Products Outlook, we highlight the Spotted Lanternfly and the Spruce Bark Beetle. Both pose direct risk to plant health and mortality from an economic standpoint. One of the things that's always concerning is when quarantine zone boundaries change, creating barriers for trade and for logistics. It tends to be a disruptive force. 

Are there any other thoughts you'd like to share today?
The forest products industry is something I am passionate about at Horizon. Forests cover about 60% of our state's land base, and it's always going to be an important industry for our state. The industry is very important to Horizon. It's a large portion of our loan portfolio and a focus for a lot of our time, talent, and treasure here at Horizon. And we want to make sure we stay abreast of everything that is happening in the industry so we can ensure we serve the market appropriately.

We recently interviewed Katie Epstein, loan officer and assistant manager with Horizon Farm Credit.

Katie reviewed CFAP 2, a second round of Coronavirus Food Assistance Program (CFAP) assistance for farmers who experienced losses related to COVID-19. Katie discusses the program and next steps that Pennsylvania farmers need to take to access the funding.

Let’s start with some of the basics. What is CFAP 2, how is the funding different than CFAP 1 and what do farmers need to know? 
CFAP 2 is a second round of funding for agricultural producers who continue to face market disruptions and associated costs because of the COVID-19 pandemic. It totals an additional $14 billion, using funds available from the Commodity Credit Corporation (CCC) Charter Act and CARES Act.

You might remember that CFAP 1 was available this summer and was the first round of direct assistance for farmers and ranchers. For comparison, CFAP 1 totaled $16 billion in direct funding for farmers. CFAP 2 is similar to CFAP 1 in that there are specific guidelines for each commodity on how the CFAP funding is calculated. Under CFAP 1, commodities generally qualified for payments if their price declined by at least five percent for a specified amount of time, typically between January and April 15. Under CFAP 2, the five percent price decline is one of three methods to determine eligibility and the time frame extends from April 15 to the end of the year. Additionally, CFAP 2 is available to a wider range of commodities than CFAP 1 and includes goats, bison, tobacco, hemp, additional classes of wheat and more. 

CFAP 2 is administered through the Farm Service Agency (FSA) and the application period opened earlier this week on September 21. The application period will remain open until December 11.

What’s your perspective on how CFAP 2 will help Pennsylvania farmers and who should apply?
With the expanded scope of CFAP 2, many Pennsylvania farmers will be able to qualify for most, if not all, of their commodities produced. That makes it a great program for Pennsylvania farmers.

In CFAP 2, payments are made for three categories of commodities.

• First is the Price Trigger Commodities which I already spoke about briefly. This is for commodities that meet a minimum five percent price decline over a specified period of time. Price trigger crops include corn, soybeans, barley, wheat and more. Payments are based on 2020 planted acres of the crop, excluding prevented planting and experimental acres. Payments for price trigger crops will be the greater of
  • The eligible acres multiplied by $15 per acre, OR
  • The eligible acres multiplied by a nationwide crop marketing percentage, multiplied by a crop-specific rate and then the producer’s 2020 Actual Production History approved yield.

The CFAP paperwork and your local FSA office can help you determine which method qualifies for your situation.

If you are in the poultry industry, the calculation for broilers and eggs will be based on 75 percent of your 2019 production.

If you are a dairy producer, payments are based on actual milk production from April 1 to August 31 and production for September through December will be estimated by FSA.

If you are a beef, hog or sheep producer, payments are based on the maximum owned inventory of eligible livestock, excluding breeding livestock, on a date selected by you, the producer, between April 16 and August 31, 2020.

• The second category is for Flat-rate Crops. These are crops that don’t meet the five percent price decline trigger or don’t have data available to calculate a price change. For this category, payments are calculated based on 2020 acres multiple by $15 per acre. This would include alfalfa, hemp and triticale to name a few crops here in Pennsylvania.
• The third and final category is Sales Commodities. This includes specialty crops, aquaculture, nursery crops and floriculture and some other commodities not in the first two categories. Payment calculations will use a sales-based approach where producers are paid based on five year payment gradations associated with their 2019 sales.

One item to keep in mind that is that there is a payment limitation for CFAP 2 of $250,000 per person or entity for all commodities combined, which is similar to CFAP 1. This is a separate limit from CFAP 1, so any payments received from CFAP 1 will not impact your limit for CFAP 2.

What else do you think is important for farmers to know about CFAP 2? 
First, I encourage you to learn more about CFAP 2 and the specific details related to the commodities you produce. Information is available from USDA at farmers.gov/CFAP or you can call USDA at 877-508-8364 to speak directly with a USDA employee who is ready to offer assistance. Again, you will apply for CFAP through your local FSA office, so once you have your information prepared you’ll want to reach out to them.

Second, I want to emphasize that while this assistance from the federal government will be helpful to agricultural producers this year, especially with the swings in commodity prices and uncertainty of markets, CFAP funds are taxable and may result in tax consequences on your operation. Tax planning is important every year but especially in 2020 because of the extra government support programs this year due to the pandemic. I encourage you to consult with your accountant or tax advisor in the coming months.