New tax law could harm U.S. grain companies

by Arvin Donley
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CHICAGO, ILLINOIS, U.S. — A new U.S. tax law will give farmer-owned cooperatives an advantage over privately-run and publicly traded grain companies in sourcing grain, according to a report from Reuters.

The provision in the tax law, which was passed in December, gives farmers a large tax deduction for selling their crops to agriculture cooperatives. The new tax law allows farmers and ranchers to claim a 20% deduction on all payments received on sales to cooperatives.

According to Reuters, the law could make it more difficult for the United States’ biggest grain traders such as Archer Daniels Midland Co. (ADM), Bunge Ltd., and Cargill to source grains and oilseeds.
Cargill, which is privately held, told Reuters it was surprised the provision was added to the bill at the last minute and is evaluating its potential impact. ADM, a publicly traded company, said it was looking for “various potential solutions” to the provision.

Reuters said the change focuses on a provision in the federal tax code that cuts taxes on proceeds from agricultural products — whether corn and soybeans, or milk and fresh fruit — that farmers and ranchers sell to farm cooperatives such as CHS Inc. There is no comparable provision for farmers doing the same business with private or investor-owned companies.

CHS, the largest U.S. agricultural cooperative, told Reuters the new law ensures that “that cooperatives continue to be a driver of economic growth in rural America.”
 
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