What does the new Farm Bill mean for you?
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.
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.
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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.