ERP Phase 2 Questions
Although USDA issued regulations on Phase 2 of the Emergency Relief Program last week, we have several questions that have not been answered.
USDA issued regulations last week on ERP Phase 2. Our previous post went over the details of Phase 2. However, there are several questions that need answers and we review those questions in this post.
One of the major questions in what they mean by Allowable Gross Revenue (AGR). Is this based solely on actual sales that occurred during the calendar or fiscal year. Or does it mean all revenues from crops that were harvested in those benchmark and disaster years even though those sales occurred in the year after harvest or perhaps are not even yet sold for the 2021 crop year.
Why are hedging gains or losses excluded from the definition of AGR. It seems that the actual amount of income earned by the farmer should likely include hedging gains or losses. This is the “real” amount of income earned by the farmer, not necessarily what is received from delivering the crop.
Let’s look at a couple of examples.
Sally shows $1.5 million of crop sales in 2018 and has hedging gains of $500,000. In 2020, she shows total AGR of $1.2 million. Since hedging gains are not allowed, she does not qualify for Phase 2. If these gains were included, she would qualify.
Let’s now assume same numbers for 2018 for crop sales, but no hedging gains in 2018. In 2020, she shows total AGR of $1 million and had hedging gains of $750,000. In this case, since her AGR is more than 30% lower than 2018, she qualifies even though her total farm income is $250,000 higher than 2018.
These are the major questions that we see right now. I am sure there will be more. We will keep you posted.