It’s been a long, bumpy road through Congress for the Agricultural Act of 2014 – aka the farm bill – but after two years of debate, the president signed the legislation into action Feb. 7.
The nearly $1 trillion bill props up the nation’s agribusiness industry for the next decade and strengthens those who have long been called the backbone of America. But other area industries also stand to gain from that strength and southwest Missouri’s community bankers are just as happy about the resulting legislation as farmers seem to be.
“Anything that offers stability and support to the industry is welcome,” said Brian VanFosson, president of Citizens Bank of Rogersville. “I’ve always felt the government should support agriculture. Consistency in their industry means added consistency in our industry.”
Representing nearly 7,000 community banks nationwide, the Independent Community Bankers of America supported passage of the legislation and identified three key components of the bill that benefit bankers: removing term limits on U.S. Department of Agriculture loans, preventing future expansion of the Farm Credit Services program and enhancing crop and revenue insurance programs.
USDA loansMuch like U.S. Small Business Administration-backed loans for small-business owners, under USDA’s guaranteed farm operating loan program, private-sector commercial lenders provide financing to farmers who would not otherwise qualify for commercial credit. Previous term limits allowed a farmer only 15 USDA loans during the course of a career – which could possibly span decades.
“Most of these farmers start in their 20s and continue on until they’re in their 70s or 80s. When you think about it like that, 15 loans over a lifetime isn’t much,” Legacy Bank and Trust President John Everett said. “People need money in tough times and these loans are supposed to do that. Without term limits, now they can.”
The ICBA estimates about 8,200 farmers and ranchers nationwide were ineligible for USDA loan guarantees because of term limits.
Everett said farmers have always been at the mercy of Mother Nature. Too much rain, not enough rain or rain at the wrong time can destroy a crop for the season, leaving farmers in a money crunch.
“This allows to make more loans to those farmers,” Everett said, adding about 15 percent of Legacy Bank’s loan portfolio is in USDA and other agribusiness loans.
Farm Credit SystemThe FCS was established in 1916 by the congressional Federal Farm Loan Act to make short- and long-term loans to new farmers. Today, it is a $250 billion government institution – similar to Fannie Mae and Freddie Mac, according to the national organization’s website. However, unlike Fannie and Freddie, the FCS makes loans directly to consumers, putting the government in direct competition with the private sector. The farm bill prevents further expansion of the FCS program.
“I know we lose loans to the FCS all the time,” said VanFosson, at Citizens Bank of Rogersville. “I just had a call yesterday from a borrower who has literally been with us more than 40 years and chose to take an FCS loan because they can offer a better rate.
“I can’t fault him for that, it’s business. I know as a business, we just can’t compete with the federal government.”
According to the ICBA, the FCS made $4.34 billion in profits in 2012 and paid $222 million in combined federal, state and local taxes – an effective tax rate of about 5 percent.
“Originally, their purpose was to loan to new farmers. Now, they have morphed into what would be the ninth largest financial institution in the country,” Legacy’s Everett said. “However, their tax rate is approximately 5 percent, as compared to 35 percent for my institution.
“They are able to price their loans well below what banks like mine can offer. This is troublesome for us when they are loaning money to farmers that have been in operation for more than 40 years.”
Bryan Allison, Bank of Bolivar senior vice president and branch manager, said he’s seen several customers go with FCS during the years.
“They used to have an office here in Bolivar before moving to Springfield,” he said. “I think because of the convenience factor, we picked up a few loans when they moved, but it’s not as many as have left over the years.”
Allison said between 10 and 15 percent of the bank’s loan portfolio is in agriculture loans, mostly for real estate.
“Everyone and everything has a real purpose in life and they need to stick to it,” VanFosson said of the FCS system. “The lines get blurry when an organization designed to help new farmers starts giving corporate loans. It created an unlevel playing field.”
The Springfield FCS Financial office deferred comment to the Missouri central office in Jefferson City. FCS officials were unavailable by press time.
Crop insuranceThe farm bill expands federal crop insurance programs for farmers by $7 billion during the next decade and eliminates the often-criticized $5 billion crop subsidy to farmers who received the payments to plant up front, whether their crops survived the season or not.
Everett said the new insurance system works much like homeowners or other insurance – it’s there when you need it.
“Farmers will pay annual premiums based on their anticipated yield,” he said. “If something happens and the weather ruins everything, the insurance works and they still get paid for that yield.
“If all goes well with the crop, no insurance is paid out.”
Everett said the new plan guarantees farmers a certain income each year, whether in produced crops or insurance funds.
“From a banker’s standpoint, it’s a wonderful thing to know exactly how much income a borrower will have each year,” he said. “Knowing the bottom line in a worst cast scenario benefits everyone involved.”
