US farmer tax cut threatens to overhaul market, ABCD mull response

US agribusiness giants said Wednesday they are mulling their response to changes in domestic taxation levels that are said to heavily favour farmers and cooperatives at the expense of major trading houses.

The tax overhaul, a flagship policy of the Trump administration, was signed into law on December 22, giving President Trump a major legislative victory, although it was criticised in some quarters for giving tax breaks to corporations.

However, the tax change included a last-minute provision that enabled farmers working with cooperatives to claim a 20% deduction in taxes, in a move that could freeze out other players such as US agriculture majors Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus.

That would fundamentally rewrite the established supply chains for corn, soybeans and wheat as well as many other agricultural products and has triggered a co-ordinated response from at least three of the big four so-called ABCD firms that dominate trade.

Both ADM and Bunge provided the same response to questions from Agricensus. Both companies are exploring the “potential impacts of the provision” as well as working with industry peers on “various potential solutions.”

Cargill and Louis Dreyfus were approached for comment, but neither was available, although Cargill told Reuters News it was also “evaluating the impact.”

CHS, the largest US agricultural cooperative and one of the organisations that stands to benefit from greater farmer participation, told Agricensus that it was still working to understand the impact of the new law, but appreciated that tax benefits would be maintained for farmers.

"(The amendment) should help ensure farmers receive appropriate benefits in the new tax law and that cooperatives continue to be a driver of economic growth in rural America," a spokesperson for the cooperative said by email.

Last minute

The provisions, which are valid until 2025, were a last-minute insertion into President Trump’s Tax Cuts & Jobs Act and meant to offset the removal of another 13-year old provision that allowed farmers to reduce their tax bill regardless of where their income arises.

However, the amendment in the 2017 act gives “taxpayers other than a corporation” the ability to reduce their tax bill by up to 20%, a phrase that has alarmed the agribusiness giants and sparked speculation among the trade that the tax code change won’t last.

Kami Capener, communications director for John Hoeven, a Republican senator from North Dakota that jointly sponsored the bill, told Politico the provision was not made to put private firms at a disadvantage.

"We are looking into any unintentional impacts to non-cooperative elevators and will work with them to address it," Capener said, according to the Politico website.

However, it is unclear what such a fix would entail, as to be filibuster proof any new law needs a minimum of 60 senators to vote for it in the US Senate.

In a statement to Agricensus, ADM’s Media Relations officer Jackie Anderson emphasised that the company’s services to farmers is more than simply buying grains.

She highlighted they also provide the farmer with analytic tools, fertiliser, animal feed and other trucking and logistics services.

Nevertheless for farmers that are a member of a co-operative and sell to a co-operative the tax cut  could be worth between 3-17 cents a bushel, according to Paul Neiffer, principal at accountancy firm Clifton Larson Allen. 

That is equivalent to 1-5% of the current corn price.