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What does the new Farm Bill mean for you?

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Bill Watson, president of UMB Agribusiness, breaks down what you need to know about the newly-passed Farm Bill in this video.

For more information, keep reading below.

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Every five years, Congress passes legislation known as the Farm Bill that sets policy for our nation’s agriculture, nutrition and conservation. After being without a bill for the last two years due to Congressional differences, Congress recently approved the latest version of the Farm Bill. One of the most important components the new bill provides is consistency to the planning process, allowing producers to determine their probable cash flows and insurance coverage levels for the years ahead.

There are two major issues that arise with the new bill that require careful consideration for farm financial planning. Both of these issues can have a material impact on revenue streams and, consequently, on producers’ ability to cover debt payments and input costs in the coming years.

1)      elimination of direct payments

  • These were based on the number of acres farmers owned and not on the condition of their crops.
  • Impact on future cash flows: In many cases this may not be material, but in some cases where new increased debt levels may have stressed cash flows and debt coverage, this reduction in total income can have a serious, detrimental effect.
  • Producers need to work closely with their banks and financial advisors to review the impact of this change in forecasting the adequacy of future cash flows, and determining if changes in debt levels, loan terms or loan structure need to be made to accommodate lower future income levels. This should be done now rather than waiting until next year when the effect has already impacted the banking relationship. Being candid and straightforward with bankers and advisors as to any problems the reduced payments may potentially bring to operations will be critical for producers and their short- and long-term financial planning.

2)      new coverage types and levels for crop insurance

  • Now that there are no more direct payments, crop insurance will become the foundation of the new bill.
  • Producers immediately need to determine which option will work best for their individual farms. Farmers now have the option between two new insurance programs – Price Loss Coverage or Agriculture Risk Protection.
  • Price Loss Coverage pays the farmer or producer when the market price for a covered crop is below a fixed reference price.
  • Agriculture Risk Protection – makes payments to farmers when either the farm’s revenue from all crops or the county’s revenue for a crop is below 86 percent of a predetermined benchmark level of revenue.
  • In most situations, the best way to make the irrevocable selection between the two program options is to review how the options would have impacted specific farming operations throughout the last several years. By looking at several years, or by forecasting crop rotations into the next five years when possible, producers can determine which option will provide the best insurance coverage under a variety of potential circumstances.

Careful consideration of future operations, past insurance costs and coverage, and required levels of risk mitigation can yield significant improvement to overall farm income in the years ahead. Taking proactive steps to evaluate these areas with bankers and financial advisors will be critical in establishing a strategic plan and achieving the best outcomes financially possible for farming operations.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Watson serves as president of the UMB Agribusiness Division. He joined UMB in August of 2005 and has also served as the president of the UMB Kansas region. Watson is a graduate of Wabash College in Crawfordsville, Indiana with a major in Psychology. He has also attended The Colorado School of Banking, The National Commercial Lending School (where he has also been an instructor), and the Stonier Graduate School of Banking.



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UMB: Inspiration – Agriculture

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UMB prides itself on being a financial institution with a heartbeat. We are passionate about what we do and want to share what inspires us with our readers.

Bill Watson, president of UMB Agribusiness, kicks off the UMB: Inspiration series as he shares why he loves agriculture. Take a minute to listen to what inspires him.

“I like agriculture because of the people, because they’re solid. They’re honest. I like agriculture because it’s beautiful. I get to drive across this country and see fields of cotton, wheat, corn and soybeans growing. It makes my heart good.”

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Mr. Watson serves as president of the UMB Agribusiness Division. He joined UMB in August of 2005 and has also served as the president of the UMB Kansas region. Watson is a graduate of Wabash College in Crawfordsville, Indiana with a major in Psychology. He has also attended The Colorado School of Banking, The National Commercial Lending School (where he has also been an instructor), and the Stonier Graduate School of Banking.



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Watching the Forecast: Ag interest rates may soon rise

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If you are an agribusiness leader, you have many variables to consider in today’s market. Weather patterns spanning across the too wet/too dry continuum continue to baffle producers. Grain and commodity prices have started to gain strength, and both are up from recent levels but are still below the highs of the past several years. And land prices continue to hold (for now) at historically high levels in many areas of the country.

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These factors are all important, but there is one other variable that may be the most important when planning for your financial future: interest rates. With historically low rates currently being offered for operating lines of credit, as well as some floating rate term debt financing that has been put in place during the last four to five years, it’s important to remember that interest rates can change as fast and dramatically as corn prices.

As the American economy improves and the Federal Reserve Bank looks at beginning to ease its securities purchasing, the stage is set for a return to “normal” interest scenarios during the next couple of years. As that happens, producers with large floating rate exposure can expect to see their interest expense double or even triple during that same time frame. The range between fixedand floating rates will also expand, returning to levels similar to those before the financial crisis. When that happens, borrowers with only floating rates will be at the mercy of the financial markets in terms of controlling their interest expense.

Reviewing your balance sheets and future cash flows now – with an eye toward the next several years – can both produce large potential interest expense savings and protect against possible loan repayment challenges. As you look ahead, here are four steps to better financial planning:

  1. Review your current debt and forecast projected debt levels for the next four years. Include your amounts, repayments required, current rates, and most importantly, whether your rates are fixed or floating.
  2. Optimize how you use your fixed assets (land or equipment) for securing the minimum level of total debt anticipated each year. This should be done regardless of whether it is presently for revolving/working capital lines or fixed assets.
  3. Determine your available cash flow for debt service during the next four years.
  4. Structure new fixed-rate debt now by using a conservative debt service coverage ratio (1.3 to 1 or greater).

By fixing rates now, with proper use of fixed assets as collateral, and carefully forecasting future operational cash flows, you can effectively lock in today’s historically low rates, save tens of thousands of dollars or more in interest expense, and be far better prepared to manage other variables that may come into play.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Watson serves as president of the UMB Agribusiness Division. He joined UMB in August of 2005 and has also served as the president of the UMB Kansas region. Watson is a graduate of Wabash College in Crawfordsville, Indiana with a major in Psychology. He has also attended The Colorado School of Banking, The National Commercial Lending School (where he has also been an instructor), and the Stonier Graduate School of Banking.



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UMB Bank forms agribusiness unit

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When UMB opened its doors in Kansas City 100 years ago as a local store-front bank, the city was mostly agricultural and many of the company’s first loans were to agribusinesses‡. Today, UMB serves more than 1,000 clients in this industry. Stafford County Flour Mill‡, for example, has been a long-time UMB agriculture customer.

We recently launched a division that will be solely devoted to agribusiness lending to serve customers footprint-wide. This expansion will cover all areas of agriculture, from producers and processors to suppliers and manufacturers of equipment and goods.

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I am proud to lead this new division with an expert team that has more than 200 years of combined ag lending experience. Some of our customers include ag machinery manufacturing companies, like Harper Industries‡, and ag machinery and equipment wholesalers, like Sydenstricker Implement Company‡. Our experience with a diverse customer base gives our new division the knowledge and expertise to support every type of agribusiness-related organization.

UMB has built a reputation on relationships for the last 100 years. An example of how we partner with our customers is when we worked closely with our farmers and grain merchandisers in 2008 to forecast their potential borrowing needs for the year. By doing this we increased our loan commitment levels before the market prices increased. This type of customer-based, proactive relationship has helped our customers reduce risk and, in turn, helped them meet the needs of their customers while still expanding their business in an ever changing economy

We understand that the agribusiness field is filled with factors that are outside of human control, like unpredictable weather or fluctuating grain prices. We’re here to help our agribusiness partners manage one of the areas of this industry they can control—their finances—in order to grow their business now and into the future.

 

Bank deposit products provided by UMB Bank n.a., Member FDIC. Equal Housing Lender 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Watson serves as president of the UMB Agribusiness Division. He joined UMB in August of 2005 and has also served as the president of the UMB Kansas region. Watson is a graduate of Wabash College in Crawfordsville, Indiana with a major in Psychology. He has also attended The Colorado School of Banking, The National Commercial Lending School (where he has also been an instructor), and the Stonier Graduate School of Banking.



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