The mammoth agricultural bill which passed the U.S. Senate Tuesday could make agricultural lending a riskier business for credit unions.
It has Loren Hansen, agricultural loan officer at Co-op Credit Union in Montevideo, Minn., worried.
Hansen said he is concerned because the legislation replaces the farm income certainty of direct payments with the uncertainly of insurance.
Under the bill, farmers would have to choose between program price loss coverage or agricultural risk coverage.
With price-loss coverage, national crop price benchmarks are established. If what the farmer actually receives for the harvest per bushel or other unit is lower, there could be compensation.
Agricultural risk coverage payments kick in when crop revenue guaranteed by the government falls below 86 percent of a county's benchmark average.
Hansen said part of his worry about the farm bill is because a farmer in one part of a county could earn less and receive less compensation from hail damage while local farmers who weren't hit by hail earn more and bring up the county average.
"This is riskier for our credit union because we can't plan as well," Hansen noted.
Trade Group Reactions
NAFCU and CUNA said they are pleased the bill eliminates the potential for thousands farmers and ranchers to be kicked out of USDA Farm Service Agency Guaranteed Loan Programs because they have been in them too long.
The FSA provides credit unions and other lenders with a guarantee of up to 95% of the loss of principal and interest on these borrowings loans. The government provides about $12 billion in credit through the program.
CUNA said the guarantees are valuable to rural credit unions and their members since they make credit available to farmers who do not meet normal underwriting standards.
Another portion of the legislation that will affect credit unions is the authorization of a pilot micro-loan program for farmers served by Community Development Financial Institutions which many credit unions in poor rural areas are.
The maximum a farmer could receive would be $50,000. It will be up to the Secretary of Agriculture to decide if this initiative takes the form of a guarantee or a direct loan from the government.
