Private companies worry that a tax deduction to farmers who deliver grain to co-operatives will put them at a disadvantage
CHICAGO, Ill. (Reuters) — New tax laws in the United States are poised to drive more control over the nation’s grain supply to farmer-owned co-operatives, provoking concern among ethanol producers and privately run grain handlers that they could be squeezed out of the competition to buy crops.
Until now, the co-operatives, private companies and publicly traded firms had a more even opportunity to handle the grain supply.
The changes mean massive grain traders such as Archer Daniels Midland, Bunge and Cargill could find it difficult to source corn, soybeans and wheat.
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The perceived threat to these companies stems from a provision included in the final stages of the law’s passage in December. It gives farmers such a big tax deduction for selling their produce to agricultural co-operatives that private firms fear their grain supply will dry up.
The provision was championed by Republican farm state senators.
Privately held Cargill said it was surprised the provision was added to the bill at the last minute and is evaluating its potential impact.
ADM, which also produces ethanol, said it too was evaluating the provision and “various potential solutions” to it.
The new tax law allows farmers and ranchers to claim a 20 percent deduction on all payments received on sales to co-operatives.
“It is going to put us out of business as a private (company) if something is not changed right off the bat,” said Doug Bell, president and general manager of Bell Enterprises Inc., which operates grain elevators in central Illinois.
“There is just no reason whatsoever why a farmer would do business with anyone other than a co-op.”
The deductions could come as a massive boon to cash-strapped U.S. grain farmers, who have struggled for at least four years amid a global grain glut and sluggish commodity prices.
Some farmers seeking to take advantage of the new deduction are already asking about transferring grain they have stored at private elevators and selling it to co-operatives, Bell said. An association that represents co-operatives also has received questions from people who want to open new co-operatives.
The change focuses on a provision in the federal tax code that cuts taxes on proceeds from agricultural products that farmers sell to farm co-operatives.
There is no comparable provision for farmers doing the same business with private or investor-owned companies.
“The advantage for the farmer is probably at least five times larger selling to a co-op versus not selling to a co-op,” said Paul Neiffer, an accountant at CliftonLarsonAllen in Yakima, Washington.
Neiffer said he has received hundreds of calls and emails from private elevators upset about the law.
Chuck Conner, president and chief executive officer of the National Council of Farmer Cooperatives, said his organization had begun to receive calls from people asking about starting a co-op to take advantage of the deduction.
“The producer/member deduction is more generous than most of us thought possible a few months ago,” he said in an email to members.
The number of U.S. farm co-operatives has been steadily shrinking in recent years as they scramble to consolidate and stay competitive amid the merger frenzy of major seed and chemical companies.
There were 1,953 farmer, rancher and fishery co-ops in 2016 in the United States, down 4.6 percent from a year earlier, according to the most recent U.S. Department of Agriculture data. They handled US$44.3 billion in net sales of grains in 2016, down 33 percent from a $66.3 billion peak in 2013.
