3 Topics Producers Should be Tracking in the Farm Bill

Wed, 31 May 2023 15:23:48 GMT

It’s no secret that conservation and insurance will be heavy topics of discussion in ongoing farm bill debates this year. But it’s difficult to understand the exact role each title will play in legislation.

There might be some insight from House Ag Committee Chairman Glenn Thompson (R-Pa.).

“We don’t need to rewrite the entire farm bill,” Thompson says. “We’re comfortable with many parts of the 2018 bill and there aren’t many tweaks or changes, instead things we need to protect and invest in more.”

With Thompson’s words in tow, Kala Jenkins, Pinion ag consultant, and her colleague Bill Penn, Director of Farm Program Services, have carved out their own theories on what to expect in farm bill 2023.

Here’s a highlight of what they’re tracking as we move through the year.

1. Program Limitations with FSA

USDA defines a small farm as one that sees gross cash farm income under $250,000. According to the agency’s 2021 data, large farms—operations that gross more than $250,000—account for 85% of ag’s market value.

But these income brackets often leave small producers emptyhanded when it comes to disaster programs, according to Senator Chuck Grassley (R-IA).

“The 2018 Farm Bill was intentionally written to help the largest farmers receive sometimes millions of dollars of subsidies from the federal government each year,” Grassley said to USDA Secretary Tom Vilsack in a Senate Ag Committee hearing. “I’m asking that you would now work with me to stop this needless abuse of taxpayer dollars.”

Related story: Crop Insurance, Production Costs, ERP Among Key Topics at Senate Ag Farm Bill Hearing

Penn, who formerly served as USDA’s Assistant Deputy Administrator from 1985 to 1993, doesn’t see the aid differences as abuse and wants aid to go to the producers who make the biggest difference.

“Congressmen always like to talk about how 10% of the producers are getting 70% of the payments, but those 10% of growers are producing 85% of our supply,” Penn says. “If the goal of aid is to ensure America’s needs are met, we have to offer protections to those that put in the work.”

2. AGI Calculations

Adjusted gross income (AGI) is used to determine eligibility for disaster programs, through means testing.

Penn formerly served as USDA’s assistant deputy administrator from 1985 to 1993. He says in the 1980’s, disaster programs means testing was determined through gross receipts rather than AGI. Penn believes AGI is a better test for means testing than gross receipts because it is a “net income” number rather than a gross revenue number.

Related story: Paul Neiffer: PARP – Will You Get Anything?

However, in the recent WHIP+ and ERP Programs, USDA used AGI as a test to determine if someone was a farmer. In Penn’s view, gross receipts is a better measure of who is a farmer when compared to AGI.

“If a farmer has a bad disaster year, he might have a negative net income or AGI. But his wife, a schoolteacher who has a $70,000 positive, non-farm income would push them out of WHIP+ eligibility for increased limitations due to their AGI,” he says.

Penn says when the government is carving-out a disaster aid plan, it must be careful what question it is trying to answer with balance sheet numbers, or aid won’t be inclusive.

But, Penn is concerned if AGI limitations are applied to crop insurance.

3. Crop Insurance Coverage

In the past 20 years, the Federal Crop Insurance Program has covered an average of 87% of all U.S. croplands that were eligible for the program.

So, is a climate angle how crop insurance should be viewed? Jenkins isn’t convinced. She says the bottom line is in making programs voluntary.

“If we focus solely on climate and conservation in all our farm bill initiatives, could we miss something in the literature that could make certain practices mandatory instead of voluntary? That’s the concern we’re hearing from growers now.”

Related story: Commodity Programs Might See a 12% Cut in the Proposed $1 Trillion Farm Bill

Beyond conservation, Jenkins hears whispers of Title XI programs taking an entirely different direction in 2023.

“I’ve heard chatter about whether we need to change the way some of these programs work today, like whole farm crop insurance programs versus the noninsured crop disaster assistance program.” she says. “Then there are also some stakeholders questioning whether we need to link insurance to conservation, while others don’t want it to be the main focus. The needle is all over the board.”

What To Know When You’re At The Table With An Alternative Ag Lender

Wed, 31 May 2023 15:19:20 GMT

I recently wrote about the bigger role that alternative lenders are playing in agriculture . They can often provide capital for expansion and growth opportunities that traditional banks can’t or won’t.

If you’re ready to meet with an alternative lender, here are some points to keep in mind:

Bring your team to the table. Financial and business arrangements can get complicated quickly, says my colleague Scott Miller, a principal and director of national tax solutions with Pinion. When you meet with an alternative lender, surround yourself with your business attorney, tax advisor, accountant and anyone else who can look out for your interests. They’ll help you understand the fine print, think through potential ramifications and offer advice to structure the best deal for you.

Negotiate. Every deal is different, so negotiate with the financer. This will be a mid- to long-term partnership, so you want the best rates, terms and conditions you can get. For example, if a 15-year deal creates cash-flow problems for your business, you might negotiate a 25-year deal instead.

Consider the entity structure. There are two general ways your deal will likely be structured. It may work more like traditional financing, with an interest expense. Or, it can be formed as a partnership, where you’ll share profits and losses from the business with the lender. Further, Miller notes, “you now have a partner who may want to be part of the decision-making process.” He also points out that you’ll have to negotiate how distributions will be made. Will the lender receive distributions first, up to the amount put in plus a return, before you do?

Take into account tax issues, liability protection and security. If your deal works more like traditional financing, you’ll have interest expenses, which could bring you into interest-expense limitations. “Make sure you run the numbers, be aware of any limitations and understand the farming election if necessary,” Miller says. You may also form separate entities for your land, operations and equipment so you have liability protection.

Touch base with your local Farm Service Agency office. It’s important to ensure there are no issues, such as entity structure and collateral, that could impact your eligibility for FSA payments.

Keep accounting methods in mind. If you enter a partnership arrangement, you want to make sure you avoid problems with your cash method of accounting. Since most farmers use the cash method, those rules can get tricky when you bring in other owners, Miller says.

As you can see, financing deals can be complicated, especially when you’re entering the relatively new territory of alternative lending. Make sure you have your eyes wide open and a team of experts at your side every step of the way.

Read More from Kala:

Out-of-the Box Lending Options for Farmers

Kala Jenkins: How to Take Risk Off The Table for Your Farm

Your Farm Office Of The Future

MILK Business Quarterly

3 Topics Producers Should be Tracking in the Farm Bill

1. Program Limitations with FSA

2. AGI Calculations

3. Crop Insurance Coverage

What To Know When You’re At The Table With An Alternative Ag Lender