What Bankers Need to Know about the New Farm Bill

By Ed Elfmann

Late last year, after years of hearings and agricultural policy debates, President Trump signed the 2018 Farm Bill into law. This long-anticipated piece of legislation made many changes to agricultural policy and bankers will definitely feel the affects of the 2018 Farm Bill in the near future.

What is in the Farm Bill that will affect bankers?

There were many policy changes within the 2018 Farm Bill, but the one that may affect bankers the most is the changes that were made to the Farm Service Agency’s programs:

  • Guaranteed Farm Ownership is increased to $1.75 million.
  • Guaranteed Farm Operating is increased to $1.75 million.
  • Direct Farm Ownership is increased to $600,000.
  • Direct Farm Operating is increased to $400,000.

These increased loan limits should provide a greater level of flexibility to bankers when working with their customers. With these new higher limits, bankers will be able to bring more farmers and ranchers into the FSA loan programs, especially young, beginning and small farmers.

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The Farm Bill also made changes to the Agriculture Risk Coverage and Price Loss Coverage programs. For the 2019 crop year, producers will be able to change their coverage option. More importantly, in 2021, producers will be able to re-elect their coverage option. This means that producers would be able to try both ARC and PLC or stick with one over the other. What does that mean for you as a banker? You’ll need to learn the programs and how they will affect cash flow for your customers. With the ability to change coverages, bankers will need to be aware of the implications of both programs and work with their producers for the best outcome. Lastly, PLC references have been increased, as you can see in the above chart. These new reference prices will affect how the programs work for producers—and will ultimately affect potential cash flows.

Changes to the dairy program

Bankers that lend to dairy should be aware of the many changes that were made to the current dairy program. It all starts with the name: the Margin Protection Program will now be known as Dairy Margin Coverage.

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It wasn’t only a change in the name for dairy. DMC will add new coverage levels at $8.50, $9.00, and $9.50 and you can see these coverage levels in the chart nearby.

It is interesting to note that the $4.00 coverage level is available to all dairy operations. However, producers will still need to pay the administrative fee to join the program. Bankers will need to explain to their producers why they should sign up for the program as it creates risk management for both you and your producer. There is one last incentive for producers to sign up for DMC: they will have a premium reduction of 25 percent if they are in the program for all five years of the Farm Bill.

Conservation Reserve Program, Conservation Stewardship Program and Environmental Quality Incentive Program

The 2018 Farm Bill increased the acreage on the Conservation Reserve Program. Here are the acreage limits over the life of the 2018 Farm Bill:

  • 2019: 24 million acres
  • 2020: 24.5 million acres
  • 2021: 25 million acres
  • 2022: 25.5 million acres
  • 2023: 27 million acres

In addition to the changes in acreage, there are changes to the payment levels for the Conservation Reserve Program. If you are enrolled in continuous sign up, the payments will now be reduced to 85 percent of the average county rental rate. When new land is brought into the Conservation Reserve Program, the payments will now be capped at 90 percent of the average county rental rate.

The Conservation Stewardship Program will remain a standalone program. Despite this, the Farm Bill removed the automatic renewal for landowners using the program. What does this mean for landowners? They will now have to be aware of when their enrollment in the program will expire and they will need to renew their properties accordingly.

Much like other conservation programs, the Environmental Quality Incentive Program was not immune from changes in the 2018 Farm Bill. The funding for the program will be reduced overall and the livestock carveout will now be reduced from 60 percent to 50 percent.

Hemp legalization

The 2018 Farm Bill became the vehicle for the legalization of industrial hemp. This much discussed change will give producers the ability to grow and harvest hemp for industrial uses. Additionally, bankers will now be able to finance this commodity.

USDA is currently working on the rules and regulations around industrial hemp production, and the expectation is for this to be completed by the end of the year. This would allow hemp to be grown on a commercial scale in the 2020 crop year.

According to the Farm Bill, for hemp to be legally produced, it must contain a THC level of no more than 0.3 percent. Part of USDA’s rulemaking will be to determine what happens to a hemp crop that exceeds the THC limit. This will be one of the biggest issues surrounding hemp and its production. Without these guidelines in place, producers will not be able to legally grow hemp.

According to the Farm Bill, when the hemp meets the above qualifications, it will be treated no differently than any other commodity. However, it is yet to be seen how USDA, and the other agencies that will have jurisdiction over hemp—including the Food and Drug Administration and the Financial Crimes Enforcement Network—will interpret the law. For now, bankers should pay close attention to what rules and regulations are being released, and they should be in communication with both the USDA county offices and their state departments of agriculture.

Other developments for bankers

The Farm Bill also included reforms to Rural Development guaranteed lending programs. Importantly for lenders, it added a guaranteed loan program for rural broadband construction. This program will allow you to use the power of the guaranteed programs to help your local communities finance rural broadband programs.

With these new and updated programs, the 2018 Farm Bill offers bankers many new ways to help their customers. Some of these changes may not be intuitive, but they can provide new lines of business that may not have been considered in the past.

Ed Elfmann is SVP for agricultural and rural banking at ABA.