The word from Washington on tax break for farmers: ‘Whoops!’

Tax overhaul gives farmers a huge tax break for selling to cooperatives

dollar bills

“The new tax overhaul language gives a 20 percent deduction of the net proceeds for any commodities sold by farmers. That is huge. It gives a 20 percent deduction of the gross proceeds for any commodities sold by farmers to a co-op. That is gigantic.”

Front page, above the fold, right side. That is where the AP story went in the Farm and Dairy last week. That prime location carried the story that could have the most impact on farmers for a long time. The headline featured what farmers and ag business leaders are buzzing about: “Tax overhaul gives break to farmers who sell to co-ops.”

The story is actually even bigger than the headline. All farmers who sell commodities get a big break in the new federal tax law, whether they sell to co-ops, privates, or publicly-traded companies. They just get a much bigger break if they sell to co-ops.

There is no doubt that this law gives a huge advantage to the co-ops.

Now, as they say, full disclosure: Check the tag line on the end of this piece, the same one I use every week. I work for a co-op. My day job, as they say, is buying grain from farmers and selling it to processors. If this law sticks, even for a little while, I stand to benefit, both personally and as a loyal employee.


The background to this new tax law is an example of what is wrong with Washington. At the last minute, concerned that the new tax law would eliminate a benefit that co-ops had been using in previous law, two senators got language inserted that they now appear to regret.

The language gives a 20 percent deduction of the net proceeds for any commodities sold by farmers. That is huge. It gives a 20 percent deduction of the gross proceeds for any commodities sold by farmers to a co-op. That is gigantic.

Just do the math. Farmers are not making a 20 percent margin at current prices. Thus, this law makes farming tax-free for those selling to co-ops and gives a huge break to those selling to other types of companies.

May not last

Now, the reality check. The same senators responsible for this language are leading the rush to take it all back. For whatever reason, they miscalculated. Maybe they thought margins in agriculture were better. Maybe they moved the decimal point.

They want to change the law, and therein lies the problem driving the speculation that is creating conversations in coffee shops and board rooms across America.

It should be no surprise that the ADM’s and the Cargill’s of the world are not happy to see this in the new law, and are committed to see it change. They are joined by every private commodity company or processor in the country.

There is confusion about what this all means. Should a farmer sell to a co-op and let the co-op deliver to an ethanol plant, for example.

The questions that remain are simple. How fast can this law be changed, and when would the change take effect?

First, how do you change this fast? The tax bill passed under what the Senate calls “reconciliation” rules. I make no attempt to explain this, other than to say they only needed 51 votes. To pass a new law would require 60 votes.

Maybe they get together and agree on this as a clean bill. Maybe they attach this to the new appropriation bill or to the next continuing resolution to continue the current spending or to the Dreamer/Immigration bill.

Let’s assume Congress reverses the benefits that have popped up in the new law. Now we have to figure when it takes effect. Say the language is deleted or changed by March 1. How is the grain sold before that in year 2018, taxed?

Can Congress say, “Whoops!” and make the new bill retroactive to the first of the year? They do that when taxpayers are given a break, but I am hard-pressed to think they can take money away retroactively. In fact, I think there is a statute against retroactive laws.

It gets worse after that. How are contracts that are not final priced treated? What if the law is effective at the date it is valid, but grain contracts for delivered grain are final-priced after that? What about forward contracts made before the new law would take effect?

What we do know is that co-ops are likely to be shy about offering advice to farmers, in case the law changes. Tax advisers will duck this, not knowing what happens to the law. That leaves farmers with the decision to sell based on incomplete knowledge.

Caveat emptor.


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