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CFAP: Does Your Inventory Count?

In the Coronavirus Food Assistance Program (CFAP), non-specialty crops receive payments on the lesser of the inventory on hand as of January 15 or half of a farmer’s 2019 production. But it isn’t a given that every bushel or pound is eligible. If you employ risk management techniques such as contracts or hedges, the portion of inventory covered may not be counted. 

“This is a key detail producers need to consider when applying for CFAP direct payments,” said Tony Jesina, Senior Vice President – Insurance at Farm Credit Services of America. USDA created a table to answer that question. “USDA is focusing on whether the futures component of a pricing contract is locked in or whether the bushels in question have price risk on certain types of contracts.”

None of the contracts in the top portion of the table lock in the futures element and they do count as inventory to be reported.

Those in the bottom portion of the table, on the other hand, do lock in a cash price (both futures and basis components) or the futures price, leaving basis open.

Marketing Contract Eligibility for CFAP

Type of Contract in Existence on or before Jan. 15, 2020

Explanation

Contracts Eligible for CFAP

Basis Contract

Producer locks in a basis leaving the future price to be set later.

Basis Fixed Contract

No Price Established

Producer delivers commodity without setting a sales price.

Delayed Price

Deferred Price Contract

Contracts Ineligible for CFAP

Cash Contract

Producer receives a cash price for a commodity when sold.

Fixed Price Contract

Forward Price Contract

Producer receives a cash price for a commodity based on a future delivery.

Cash Forward Contract

Minimum Price Contract

Producer locks in the cash price and buys a call option to establish a minimum price. The net cash price will never be less than the original cash value minus the cost of the call option.

Option Contract

Window Contract

Hedge to Arrive

Producer locks in a futures price leaving the basis to be set later.

Futures Fixed Contract

Futures Contract

Source: USDA

“As you calculate your inventory to report, be sure to account for any pricing mechanisms in deciding the amount,” Jesina said.

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FCSAmerica serves farmers, ranchers, agribusinesses and rural residents in Iowa, Nebraska, South Dakota and Wyoming. For inquiries outside this geography, use the Farm Credit Association Locator  to contact your local office.