Government shutdown already impacting farm operators

The partial U.S. government shutdown has entered its third week. Through the holiday season, political divisions took center stage in discussions regarding the shutdown. Local USDA Farm Service Agency offices remained open during the first week, through December 28, but have since been closed. As the shutdown continues, more federal government services will be suspended or reduced, impacting farm operators and the agriculture industry.

A majority of farm operators received the second half of the market facilitation payments (MFP) for federal tariff aide prior to the closure of local FSA offices. Producers who submitted MFP applications by Dec. 21 and had their 2018 production evidence processed likely received their MFP payments, as long as there were no other issues. Producers who did not submit a MFP application by Dec. 21, or have not had their production evidence verified, will need to wait until the shutdown ends. The deadline for MFP applications is Jan. 15, and the deadline to submit 2018 production evidence is May 1. No announcement has been made by USDA if the MFP deadline dates will be extended due to the shutdown. 

The closure of FSA offices also means producers will not be able to take out Commodity Credit Corporation (CCC) loans until the shutdown ends. These are 9-month loans taken out on a producer’s 2018 grain production that is in storage. CCC loan applications that were made by Dec. 21 were likely processed by FSA offices, and the loan funds released. The release of some CCC loan funds prior to the shutdown may have been delayed due to missing signatures or other required information. 

Many farm operators utilize CCC grain loans for accounts payables on preceding year crop operation, or to prepay crop inputs for the coming season. The CCC loans are usually at a reduced interest rate compared to traditional farm operating loans. Farmers who were counting on CCC loans for a portion of their 2019 financing may need to discuss alternatives with their ag lender.

Many ag lenders utilize FSA direct and guaranteed loans to finance farm operations. FSA loan guarantees have become extremely important in recent years because of the extended period of reduced farm income and low profit margins. The shutdown will likely slow the FSA loan approval process; if it continues, there could be difficulties for some farmers trying to finalize their 2019 operating loans on a timely basis.

The FSA direct loans are especially important to younger farmers and those with less than 10 years of experience: those who may have difficulty getting financing through traditional lenders. The direct loans typically provide longer terms at lower interest rates for land purchases and other capital improvements. The shutdown could result in producers missing a purchase opportunity.  

USDA has also announced that the monthly crop reports and the supply and demand reports, scheduled to be released Jan. 11, will be delayed until further notice. The National Agricultural Statistics Service January crop report is widely referred to, as it is usually very close to final national and state crop production and yield data for the previous growing season. U.S. crop production data, along with crop production data for South America and other parts of the world, are included in the monthly World Agricultural Supply and Demand Estimates report, which was scheduled to be released on Jan. 11. 

The WASDE report includes updated grain usage and export estimates for U.S. grain supplies, as well as projections for farm-level grain prices for the current marketing year. These reports can be very useful to crop producers, livestock producers, processors and others, as they make marketing decisions, cash flow projections, and plans for the coming year. If the government shutdown continues, more USDA data and reports could be delayed.

The shutdown will also likely slow the USDA implementation process for the new Farm Bill, which was signed into law in December. It normally takes several weeks to get the new rules and regulations written, and FSA staff needs time to be trained on the new programs before sign-ups can begin. Farm operators will need to make a two-year farm program decision for all commodity crops for the 2019 and 2020 crop years once that process is underway at FSA offices.

As of this writing, there is no solution on the horizon that would end the shutdown. The last Federal government shutdown in 2013 lasted just over two weeks. The longest government shutdown in recent history occurred in 1995 and lasted 21 days. The current shutdown reached 19 days on January 9.

Farm operators who were counting on CCC loans for short-term financing early in 2019 need to be patient. If the shutdown continues, they may want to consult their traditional ag lender for alternatives to CCC loans. Ag lenders and farmers who were planning on direct and guaranteed FSA loans need to communicate with each other regarding potential short-term alternatives. Producers who still need to apply for MFP payments need to address this as soon as FSA offices reopen, as well as watch for a potential extension of the MFP application deadline.

For additional information email Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal.  
To subscribe to BankWise for weekly Ag Lending News updates email Kristi Ploeger or call 651-789-3997.

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