The United States Department of Agriculture released its latest Census of Agriculture last week. The report found that the number of farms in the U.S. decreased. As the remaining farmers deal with challenges including rising supply costs and labor shortages, regulation limiting farmer's access to affordable capital is the last thing they need.

The Basel III Endgame proposal would do precisely that by decreasing the availability of loans for farmers, increasing both the cost of borrowing, and the cost associated with managing risks through the use of derivatives, a form of insurance to protect against unforeseen increases in production costs. If Basel III Endgame is implemented, higher capital requirements will ultimately make food and other agricultural products more expensive for consumers.

Farming organizations and local leaders voiced these concerns in official comments to the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation:

• Agriculture advocacy groups argued that the proposal would increase hedging costs across the agricultural supply chain. "Well-functioning derivatives markets are critical for hedging price risks in the agricultural supply chain. We are concerned that recent bank capital proposals will have unintended consequences for the health of US derivatives markets and make hedging significantly more expensive for all market participants. We urge you to reconsider the proposal and avoid taking actions that will harm end-users in the real economy." (American Farm Bureau Federation et al., Letter, 12/11/2023)
• The National Council of Farmer Cooperatives argued that farmers could face higher, unnecessary costs and less access to risk mitigation tools as a result of the proposal. "America's farmers and ranchers must continue to have access to a diverse set of risk management products that enable them to feed, clothe and provide fuel to consumers here at home and around the world. As such, our members are concerned that the proposed rules could result in greater and unnecessary costs while reducing the tools available to mitigate risk for their businesses and farmer-owners." (National Council of Farmer Cooperatives, Letter, 1/16/2024)
• Former mayor of Helena, MT, Jim Smith said the proposed changes would restrict rural communities' access to credit, impacting farmers and ranchers significantly. "Montana farmers and ranchers will pay higher costs for credit. Access to affordable credit is vital for farmers and ranchers. Many use loans to buy seed, cover operational expenses, purchase equipment, and acquire land…Beyond higher credit costs, there's another issue with the Federal Reserve's proposal. This issue gets deep into the weeds of how some agriculture producers hedge their risks by trading futures in the commodities markets. The practice can help a wheat farmer or cattle rancher create some certainty in an industry where nothing else is certain." (City of Helena, MT, Former Mayor Jim Smith, "New Fed ‘Basel' rule could wipe out Montana's small business, ranches and farmers," Daily Montanan, 10/31/2023)

Farmers can't afford the costs of higher capital. It's clear: regulators need to go back to the drawing board on Basel III Endgame.