A news release on Tuesday from House Ag Committee member Rick Crawford (R., Ark.) stated that, “Today [Rep. Crawford] introduced H.R. 6167, the Farm Risk Abatement and Mitigation Election (FRAME) Act, to give farmers the option of taking disaster preparedness into their own hands. The FRAME Act would establish tax-deferred farm savings accounts that farmers could then withdraw from during difficult times without waiting on disaster declarations and government assistance.
“In a conversation with the chairman of the Arkansas Bankers Association, Sean Williams, Congressman Crawford discussed the details of the legislation and how it would work in practice, including its impact on rural communities and banks. The video [is available below], and the audio here.”
The news release added that, “Like IRA’s and Health Savings Accounts, Crawford’s proposed FRAME Accounts would allow contributions, capital gains and dividends to be tax-deferred. Farmers would then be able to draw from the FRAME account whenever they needed it to cope with a disaster, independent of government or state designation, which can often be slow in coming.
“To encourage initial investment, farmers will be eligible to write-off FRAME Account contributions on their tax bill. Contributions will be tax deductible up to $50,000 per year, and farmers will retain 10% of their contributions in the form of a tax credit during the first few years after opening the account.”
And Brownfield’s Tom Steever reported yesterday that, “The accounts, said Crawford, are intended for emergency money in lieu of ad hoc disaster payments which he says are harder to come by.
“‘We’re looking at this as a way essentially for farmers to get a little bit of the tax benefit for implementing a risk management strategy that they can utilize at their own discretion, obviously with those safeguards that we talked about before,’ he said, ‘but it puts the taxpayer at no exposure.’
“The Farm Risk Abatement & Mitigation Election – FRAME – Act provides for penalties when the account is used for non-farm related expenditures such as vacations, according to Crawford. Contributions to the accounts, capital gains and dividends, he said, are to be tax-deferred.”
Mr. Steever and Rep. Crawford also discussed the legislation in more detail, an audio replay of their conversation is available here.
Nathan Kauffman indicated in a column posted yesterday at the Federal Reserve Bank of Kansas City Online (“U.S. Farm Economy Slumps into the Fourth Quarter“) that, “In August, expectations for 2016 farm income were revised up modestly from the February forecast, but income was still expected to decline notably from a year ago. The U.S. Department of Agriculture’s August revision can be interpreted as both positive and negative for the farm sector. On the positive side, farm income expectations for 2015 and 2016 were revised up by 43 percent and 31 percent, respectively (Chart 1). On the negative side, however, the expected decline in farm income from 2015 to 2016 widened from 3 percent earlier in the year to 11 percent in the most recent report. Essentially, farm income was higher than initially forecasted, but the deterioration from a year ago is now believed to be sharper than expected.”
Dr. Kauffman stated that, “The improvement in farm income expectations was largely due to downward revisionsin production costs for the farm sector as revenue expectations continued to weaken.”
The Fed report added that, “Although U.S. farm income expectations were revised up in August, profit margins for many producers of major U.S. agricultural commodities weakened significantly in the third quarter. In the crop sector, the range of average monthly prices throughout 2016 has left very few opportunities for producers to sell at a profit (Charts 4a, 4b, 4c, 4d). Since 2013, profit margins have dropped precipitously for corn, soybeans, wheat, and cotton, and both wheat and corn prices were hovering at or near 10-year lows in September.”
Yesterday’s report also pointed out that, “The downturn in the agricultural economy has continued to affect credit conditions in the sector. From 2010 to 2014, borrowers had few problems repaying loans. Since 2014, though, bankers in the Tenth Federal Reserve District have consistently reported an increase in the severity of loan repayment problems (Chart 6). As of the second quarter of this year, Tenth District bankers indicated that more than 7 percent of their agricultural loans were experiencing either ‘major’ or ‘severe’ repayment problems, an increase from just 4 percent in 2015.”
And yesterday’s report also noted that, “Bankers in the Kansas City Fed District also continued to point to spillover effects from the softening farm economy to Main Street business activity.”