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Farm Credit says banks are sound, but farmers are challenged

Agribusiness Matters 3-30-17

The Farm Credit Banks loan to farmers and are regulated by the quasi-governmental Farm Credit System.

The Head of FCS says the banks are sound but the credit risk of farming is going up. Farm Credit officials told Congress the system is working well and may need only tweaks in the next farm bill. But the greater concern is over deteriorating farming conditions.

Farm Credit Administration and Farm Credit bank officials told House Agriculture Committee lawmakers the system is sound, making credit available on flexible terms, and only technical tweaks and a strong safety net are needed in the next farm bill.

But the bigger issue seems to be the deteriorating creditworthiness of producers. FCA Chairman and CEO Dallas Tonsager.

“Debt to asset levels are rising, while net farm income is declining. Interest rates, while still low, have begun to rise,” Tonsager explained. “Crop prices are expected to remain weak through the fiscal year of 2017. These factors are causing Midwest farmland to slip. Prices in the protein and dairy sectors are also weak. As a result, the credit quality of the systems long portfolio has declined slightly.”

Tonsager says the FCA is encouraging the system to safely do all it can to help struggling borrowers, especially young, beginning and small producers.

Farm Credit Services of America President and CEO Doug Stark says the system moved “proactively,” starting two years ago.

“We started meeting with customers to work on loan payments to reduce their overall debt burden on a per acre basis, to a more manageable level. We also re-advanced against real estate equity to restore working capitol for some of those same customers,” Stark said.

Stark tells agriculture lawmakers the Farm Credit system plans for farming downturns, using a conservative capital building approach in good times, so it can better help producers in tough times.

Rather than tightening lending standards now, he says FCA banks are trying to “lean in to the wheel.”

Another official tells the Committee, farm bill tweaks won’t “turn red ink black,” but rather a “shade of purple,” enough to keep many on the land.

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