The rule has been controversial since it was first put forward in 2010.
The rules which were not formally adopted by the USDA were designed to protect the rights of farmers who raise chickens, cows and hogs for the United States' largest meat processors.
It would have made it easier for farmers to sue companies they contract with over unfair, discriminatory or deceptive practices.
Agriculture Secretary Sonny Perdue told reporters there are still protections for farmers.
"The concern was that this rule would lead to unnecessary litigation."
Sen. Charles Grassley, an Iowa farmer, said it's pandering to big corporations. They aren't interested in the family farmer," He added "The USDA is the U.S. Department of Agriculture, not the U.S. Department of Big Agribusiness."