Summary of Congressional Relief/Stimulus/Funding Package on COVID-19 (Phase 3)

Funding for Government Operations 
$340 billion across Federal agencies and state and local communities.  More than 80% ($275 billion) would go to state and local governments and communities.
•    $117 B for hospitals
•    $45 B for FEMA
•    $16 B for Strategic National Stockpile
•    $4.3 B for Centers for Disease Control
•    $11 B for Vaccines, Therapeutics, Diagnostics, and Medical Needs
USDA Funding – $49 billion total
•    Of this amount, $9.5 B to support agricultural producers, including livestock and specialty crop producers to respond to the COVID-19 losses.
•    The Commodity Credit Corporation (CCC) is provided restored funding/borrowing authority of $14 B.
•    The Secretary of Agriculture is given the authority to extend the term of marketing assistance loans to 12 months from the current 9 months.  This authority expires end of September 2020.
Department of Commerce Funding 
•    Manufacturing Extension Partnership (MEP) – $50 million to be distributed among the 51 MEP centers to help small- and medium-sized manufacturers recover from the economic impacts of coronavirus. The bill also waives the statutory cost-match requirements for all FY 2020 funding.

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

Paycheck Protection Act (Small Business Loan Program) – $350 billion
•    Eligible to businesses with up to 500 employees – loan period of Feb. 15, 2020 to June 30, 2020
•    Loan provided through banks, credit unions and other traditional lenders
•    Gives Treasury the authority to set criteria that would allow farm credit institutions to be eligible lenders under the paycheck protection program until the national emergency for COVID-19 expires
•    Also allows not for profit entities, sole proprietors, and self-employed individuals to qualify
•    Maximum loan amount of $10 M through end of 2020
•    Expands use of loan funds to include payroll, paid sick or medical leave, insurance premiums, salaries, mortgage and lease/rent payments, utility, and other debt obligations
•    Government guarantees the loans at 100% through end of 2020; 75% to 85% after 2020
•    Waives borrower and lender fees and collateral and personal guarantee requirements
•    Loan forgiveness – establishes process for borrowers to have loan forgiven in amount used for payroll, mortgage interest, rent, and utility for a period of 8 weeks after loan origination.  Amount forgiven reduced proportionally to the number of employees laid off during the period relative to prior employment level.  Eligible payroll costs do not include compensation above $100,000 in wages.

Unemployment Insurance Provisions
•    Temporary unemployment assistance program through December 2020 for those not typically eligible – such as self-employed, independent contractors, and limited work history
•    Provides payments to states to reimburse nonprofits and government agencies for half costs incurred through end of 2020 to pay unemployment benefits
•    Additional $600 per week payment to each recipient of unemployment insurance for up to 4 months
•    Pay costs of first week of unemployment benefits through 2020 for states that pay recipients as soon as become unemployed
•    Provides additional 13 weeks of unemployment benefits through 2020
Individual/Family Relief
•    Checks up to $1,200 per person/$2,400 per couple and increased by $500 per child.  Phases down at adjusted gross income over $75,000 single/$150,000 married; completely phased out at $99,000 single/$146,500 head of household, one child/$198,000 joint filing with no child based on 2019 if filed (or 2018) tax return.
•    Extends tax filing date to July 15; tax payment deadline already extended by IRS to July 15
•    Waives 10% penalty for early withdrawal for distributions from retirement accounts
•    Waives required minimum distribution rules for defined contribution plans and IRAs for 2020
Businesses Relief
•    Refundable tax credit for 50% of wages paid during COVID-19 crisis.  Available if operations were fully or partially suspended due to COVID-19 shut down; or gross receipts declined by more than 50% compared to same quarter in prior year.  For eligible employers with 100 or less full time employees, all wages qualify for the credit regardless of business status.  Credit is provided for first $10,000 of compensation including health benefits.
•    Employers and self-employed individuals can defer payment of employer share of Social Security (payroll) tax.  Deferred tax must be paid back over the next 2 years with half paid by end of 2021 and half by end of 2022.
•    Allows net operating losses (NOLs) from 2018, 2019, or 2020 to be carried back 5 years.  Temporarily removes the taxable income limitation to allow a NOL to fully offset income.
•    Allows pass-through businesses and sole proprietors to benefit from NOL carryback provision
•    Temporarily increases from 30% to 50% of taxable income for 2019 and 2020 the amount of interest expense that businesses are allowed to deduct
Medical, Healthcare, Education, and Drug Provisions
•    Hospitals and health care workers: $100 billion into hospitals and the nation’s health system.
•    Schools: $30 billion in emergency education funding.
Economic Stabilization and Assistance To Severely Distressed Sectors – $500 billion
•    Large corporations: $500 billion in loans, loan guarantees and other investments, overseen by a Treasury Department inspector general. These loans will not exceed five years and cannot be forgiven.
•    Airlines will receive $25 billion (of the $500 billion) for passenger air carriers and $4 billion for cargo air carriers.
•    Transportation: $25 billion is dedicated to emergency transit funding.

Liu: Cotton Outlook under Worldwide Coronavirus Outbreak

Along with the life-and-death struggle and the rising cases of Covid-19, financial markets worldwide have lurched lower. The sell-off of the U.S. stock market started on Feb. 21, 2020. Since then, the great coronavirus crash has been frightening in its speed. Even U.S. Treasury bonds and gold, traditionally a safe harbor in times of crisis, have come under pressure. Crude Oil May 2020 (CLK20) future prices slide to the lowest point at $20.52 per barrel on Mar. 18, 2020.

As investors’ recent pessimism over a coronavirus-induced business slowdown, the cotton market also shadows the pandemic of the coronavirus as well. May 2020 cotton futures for old crop closed at 54.93 cents per pound, and new crop December futures closed at 56.10 cents on Mar. 19, 2020.

Cotton growers need to be aware of the rising volatility and uncertainties in the cotton market. Since the disease outbreak, the cotton supply chain has been severely interrupted. Countries worldwide are implementing social distancing or lockdown, hoping to slow down the spread of the virus. The cotton industry suffers tremendously as the temporary closedown of factories to control the virus.

The long-term impact of the virus is also expected. The aftermath of the coronavirus pandemic is highly likely to result in a global economic slowdown or recession. Cotton products are discretionary items. Thus, the consumption of cotton goes up or down with the economy. Cotton demands are likely to continue decreasing due to the slowing down of the global economy. The world cotton demand is currently forecasted at 118 million bales, down 5 million bales from the last peak in 2017.

On top of everything discussed so far, the U.S. dollar appreciates during the time of crisis as investors are seeking a safety harbor. This appreciation of the U.S. dollar further hinders the export opportunity for cotton. In 2019, 83 percent (16.5 million bales) of cotton produced in the U.S. were exported and traded in the global market. U.S. cotton relies on the global market and international trade to consume excess supply and support domestic prices. The decline in oil prices is likely to increase the competition of synthetic fiber down the road, similar to what we observed after the drop in oil prices during the 2008 financial crisis.

The uncertainties in trade make cotton profitability more challenging. The signing of the Phase 1 trade deal between the U.S. and China on Jan. 15 gave the cotton market a short period of optimism. China agreed to purchase at least $40 billion worth of agricultural products for each of the next two years. However, no details are released so far about how China will be able to fulfill this large purchase of agricultural products. The outbreak of the coronavirus further increased the uncertainty in trade.

USDA Farm Service Agency announced the weekly average adjusted world price (AWP) and loan deficiency payment (LDP) rate every Thursday in the Upland Cotton Announcement. The AWP is currently at 49.95 cents per pound. The LDP rate of 2.05 cents per pound is available from Mar. 20 through Mar. 26. The LDP rate is the difference between the base loan rate of 52.00 cents and the AWP. If taking the LDP, the producer should be aware that there is no further protection from prices going even lower. Producers can wait until Mar. 25 or Mar. 26 in poping their cotton to see what the prices hold for next week. If a producer is willing to take the risk and feels that cotton prices are going to improve, then the producer could take the LDP and market the cotton later.

Looking ahead, producers need to be aware of the continuous risk of down-side price weakness and volatile cotton prices.  It might take a while before we see a recovery of cotton prices. Strategies to improve productivity or cutting costs are highly recommended during the time of low cotton prices.

Additional Information

Georgia Department of Public Health reports daily of the confirmed cases of Covid-19 in Georgia (https://dph.georgia.gov/covid-19-daily-status-report ). The latest news about the Covid-19 in the U.S. can be found on the CDC’s website (https://www.coronavirus.gov/). Keep your distance, and stay safe.

This article was written by UGA Extension Cotton Economist Dr. Yangxuan (Serinna) Liu.

Marketing Assistance Loans and Loan Deficiency Payments for Upland Cotton

Dr. Yangxuan Liu, University of Georgia Extension Cotton Economist, has collaborated with Anukul Bhattarai, University of Georgia, and Dr. John Robinson, Texas A&M University, to release this publication.  For more information, please email Dr. Liu at yangxuan.liu@uga.edu.

The Agricultural Act of 2018 (2018 U.S. Farm Bill) extended the cotton commodity loan programs for the 2019 through 2023 crop years. Cotton commodity loan programs include the marketing assistance loan (MAL) program and the loan deficiency payment (LDP) program. These programs provide cotton producers with alternative marketing tools during periods of low cotton prices. Cotton producers can receive marketing loan benefits in the form of marketing loan gains (MLG), loan deficiency payments (LDP), commodity certificate exchange gains, and forfeiture gains. Producers can participate in the MAL or obtain an LDP on all or part of their production at any time during the loan availability period, from harvest until May 31 of the following calendar year.

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