Banker and farmer should talk about the farm bill

decrease font size  Resize text   increase font size       Printer-friendly version of this article Printer-friendly version of this article

After being without a farm bill for the last two years due to congressional differences, Congress approved the latest version of the farm bill, allowing farmers to financially plan for the next five years. One of the most important components of the new bill is that it provides consistency to the planning process and allows 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. These are the elimination of direct payments, and the new coverage types and levels for crop insurance. 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. This is particularly true with direct payments, which were based on the number of acres farmers owned and not on the condition of their crop. Now, crop insurance will become the foundation of the new bill.

With the demise of the direct payments program to farmers, it is imperative that all producers clearly understand what impact this will have 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.

Additionally, the new crop insurance programs also require immediate consideration, particularly determining which option will work best for producers’ individual farms going forward. 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. The other program – 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 over the last several years. This distinction is important, as one year’s consideration may prove to be misleading, as weather conditions, crop rotations and other factors could skew results of one option for any individual year. 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.

Implementation Time Line for Selected Farm Bill Programs

Agriculture Risk Coverage (ARC)

Price Loss Coverage (PLC)

Margin Protection Program for Dairy (MPP)

Noninsured Crop Disaster Program (NAP)

Mid-Summer - 2014

Late Summer - 2014

Fall 2014

Winter 2014

Early 2015

Producers receive letters notifying them of current bases and yields and 2009 to 2012 planting history.

MPP, ARC and PLC online tools become available. MPP enrollment for 2014 and 2015 begins. MPP owners have opportunity to update yields and reallocate bases for ARC/PLC purposes.

NAP buy-up online tools become available NAP buy-up sign-up starts..

ARC/PLC one-time selections occur.

ARC/PLC sign-up for 2014 and 2015 starts.

Bill Watson is the president of UMB Bank’s Agribusiness Division. UMB Bank has headquarters in Kansas City, Mo. Watson has more than 40 years of experience working with clients in agriculture and banking business sectors. Watson can be contacted at William.Watson@umb.com.


Prev 1 2 Next All



Buyers Guide

Doyle Equipment Manufacturing Co.
Doyle Equipment Manufacturing prides themselves as being “The King of the Rotary’s” with their Direct Drive Rotary Blend Systems. With numerous setup possibilities and sizes, ranging from a  more...
A.J. Sackett Sons & Company
Sackett Blend Towers feature the H.I.M, High Intensity Mixer, the next generation of blending and coating technology which supports Precision Fertilizer Blending®. Its unique design allows  more...
R&R Manufacturing Inc.
The R&R Minuteman Blend System is the original proven performer. Fast, precise blending with a compact foot print. Significantly lower horsepower requirement. Low inload height with large  more...
Junge Control Inc.
Junge Control Inc. creates state-of-the-art product blending and measuring solutions that allow you to totally maximize operating efficiency with amazing accuracy and repeatability, superior  more...
Yargus Manufacturing
The flagship blending system for the Layco product line is the fully automated Layco DW System™. The advanced technology of the Layco DW (Declining Weight) system results in a blending  more...
Yargus Manufacturing
The LAYCOTE™ Automated Coating System provides a new level of coating accuracy for a stand-alone coating system or for coating (impregnating) in an automated blending system. The unique  more...
John Deere
The DN345 Drawn Dry Spreader can carry more than 12 tons of fertilizer and 17.5 tons of lime. Designed to operate at field speeds up to 20 MPH with full loads and the G4 spreader uniformly  more...
Force Unlimited
The Pro-Force is a multi-purpose spreader with a wider apron and steeper sides. Our Pro-Force has the most aggressive 30” spinner on the market, and is capable of spreading higher rates of  more...
BBI Spreaders
MagnaSpread 2 & MagnaSpread 3 — With BBI’s patented multi-bin technology, these spreaders operate multiple hoppers guided by independent, variable-rate technology. These models are built on  more...


Comments (0) Leave a comment 

Name
e-Mail (required)
Location

Comment:

characters left


Portable Conveyors

Convey-all portable conveyors are designed to handle your crops gently and efficiently. We offer an extensive line of high capacity ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Feedback Form