June 25, 2018

SOME PROGRESS ON THE NEXT FARM BILL

On June 21, the U.S. House of Representatives approved a new Farm Bill by a 213 to 211 vote, with all Democratic House members and 20 Republican members voting against the legislation. The U.S. Senate Agriculture Committee approved the initial Senate version of a new Farm Bill, which will now be considered by the entire U.S. Senate, with a vote expected very soon. Once a new Farm Bill passes both Houses of Congress, a Conference Committee will be set up to work out the differences in the House and Senate versions of the Bill. The compromise Farm Bill then needs to be approved by both Houses of Congress, before being sent to President Trump for final approval, in order for it to be implemented for the 2019 crop year.

Both the U.S. House and Senate versions of the next Farm Bill are very similar to the current Farm Bill for most of the commodity programs for farm operators (Title I), with only some minor tweaks to the current programs. However, there is a large difference in the U.S. House and Senate versions of a new Farm Bill for proposals in the Nutrition Title (Title IV). There are also some differences in the proposed future maximum CRP acreage and other programs in the Conservation Title (Title II). Please refer to the attached Table for a side-by-side comparison of selected programs in the proposed U.S. House and Senate versions of the next Farm Bill.

The U.S. Senate version of the new Farm Bill proposes very few changes to the food and nutrition programs that exist in the current Farm Bill. The U.S. House Farm Bill proposes some fairly major changes to Supplemental Nutrition Assistance Program (SNAP) requirements. Under the House proposal, in order to receive SNAP benefits (food stamps), there would be a 20-hour per week work/training requirement for all work-capable adults (ages 18-59). This proposal would also limit States to set the criteria at 130 percent of the Federal Poverty Level or lower, in order to receive SNAP benefits. Currently some states are as high as 200 percent of that level. There would be exemptions to the proposed requirements for specific populations that are receiving SNAP benefits, including the elderly, disabled persons, and women that are pregnant.

The proposed revisions to the SNAP program in the U.S. House Farm Bill were very unpopular with many members of Congress, which has challenged the usual “bi-partisan nature” of passing a Farm Bill. This was one of the main reasons that the new Farm Bill was defeated earlier this year by a vote on the U.S. House floor, before finally passing the U.S. House by a slim margin. Now that the U.S. House has passed a new Farm Bill containing the new SNAP requirements, this will likely be a major “sticking point” when the U.S. Senate and House versions of a new Farm Bill go to a Conference Committee. This issue could make it difficult to get adequate votes to ultimately pass a new Farm Bill in both Houses of Congress by the end of 2018.

The U.S. Senate and House versions of a new Farm Bill have some differences in proposals for conservation programs. The Senate Bill would increase the maximum allowable Conservation Reserve Program (CRP) acres to 25 million acres for 2019 to 2023, compared to the current maximum of 24 million acres. The House Farm Bill proposes to increase the maximum CRP acres by one million acres per year, beginning in 2019, up to a cap of 29 million acres in 2023. Proposals to increase CRP acres are very popular with wildlife and environmental groups, some ag organizations, and many members of Congress, as well as with the general public.

To help generate more Federal budget capacity for the added CRP acreage, the maximum CRP rental rate in a given county would be reduced to 80 percent (.80) of NASS average cash rental rate in a county for a given year in the House Bill, and 88.5% in the Senate Bill. NASS would be required to re-calculate the county-average rental rates on an annual basis. Currently the maximum CRP rental rate is equal to the NASS average rental rate in a county, which some farm organizations feel is keeping cash rental rates in some areas artificially higher than they should be, given the current farm economy.

The U.S. House Farm Bill proposal would merge the Conservation Stewardship Program (CSP) with the Environmental Quality Incentives Program (EQIP), with the goal of having more efficiency in implementing the programs, since both programs target practices on working farms. Existing CSP contracts would still be honored under the new Farm Bill, but no new CSP contracts would written. The U.S. Senate Farm Bill would keep the CSP program intact, and would keep it separate from the EQIP program, as exists under the current Farm Bill.

Both the Senate and House versions of the new Farm Bill would give eligible farm operators another one-time, 5-year choice between the ARC-CO and PLC program for the crop years 2019-2023, on a commodity-by-commodity basis. The price and yield formulas used to calculate benchmark revenues and payments for the ARC-CO program would remain the same as the current Farm Bill. Under both Farm Bill versions, the county yields used for the ARC-CO program would be based on Risk Management Agency (RMA) average yields, which are used for crop insurance calculations, rather than the National Ag Statistics Service (NASS) average yields that are currently used.

Both versions of the new Farm Bill would base future ARC-CO payments on the physical location of the FSA farm unit. In the current Farm Bill, producers with farms in multiple counties could have all farm units counted for ARC-CO payments in the county that handled the FSA administrative work for the producer. This has created inequities where a few producers with farm units in a county that was not eligible for ARC-CO payments for a given crop could still receive ARC-CO payments for that crop, due to having a different FSA administrative county, when other producers could not receive a payment.

Neither Farm Bill proposal offers an across-the-board opportunity for producers to upgrade crop base acres or FSA program yields in the next Farm Bill, such as existed during sign-up for current Farm Bill. Under the Senate Farm Bill, PLC reference prices would remain the same as the current PLC reference prices, which are $3.70 per bushel for corn, $8.40 per bushel for soybeans, and $5.50 per bushel for wheat. The House Farm Bill proposal would set these prices as a “minimum” for the PLC program, but would allow the PLC reference price for a given crop to increase above the minimum reference price, if the 5-year “Olympic-average” MYA price for that crop times 85 percent (.85) exceeds the minimum reference price, up to a maximum of 115 percent (1.15) of the minimum reference price for a that crop.

Both versions of the new Farm Bill continue the CCC marketing loan program in a similar manner to the current program, with national marketing loan rates unchanged from the current levels, which are at $1.95 per bushel for corn, $5.00 per bushel for soybeans, and $2.94 per bushel for wheat. The farm program payment limit would remain at $125,000 per eligible farm operator for commodity and conservation programs, with very few changes proposed to “actively-engaged” rules for farm program payment eligibility. The U.S. Senate Farm Bill would reduce the maximum allowable adjusted gross income to $700,000 per year to be eligible for farm program payments, while the House Bill maintains the current $900,000 maximum AGI.

There are still a lot of hurdles to clear before a new Farm Bill is finalized. Given the political discord that currently exists in Congress, together with the mid-term elections later this year, completing a new Farm Bill in 2018 could be challenging. The current Farm Bill expires on September 30, 2018. If no new Farm Bill is completed in 2018, there is a possibility that the current Farm Bill could be extended for the 2019 crop year, which could end up being quite costly to many Midwest farm operators.

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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Senior

Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960);

E-mail — kent.thiesse@minnstarbank.com)