Minding Ag's Business

Ag Credit Feud Continues

When former American Bankers Association President Fred Keating called for the demise of the cooperative Farm Credit System in a radio interview last year, 40 prominent farm and commodity organizations signed a letter chastising his remarks.

"The suggestion that the FCS and/or commercial banks and other lending institutions should be further constrained or even eliminated from the marketplace would be unwelcome and injurious to those who live and work in rural America," they wrote in a harshly worded rebuke. In short, everyone from the American Farm Bureau to Western Producers argued for more cooperation between the nation's farm lenders, not less. That's particularly true now that the farm economy is weathering a stretch of negative income years that could run to 2020.

But pressure from country banks to curtail the Farm Credit System's lending authority isn't letting up. Their feud predates the 1980s credit crisis and has escalated as the system gained market share in the last decade (see "Bankers Revive Farm Credit Feud" https://www.dtnpf.com/…).

Messaging through social media has helped the ABA's four-year-old "Reform Farm Credit" effort gain traction, Ed Elfmann, vice president of ABA Congressional Relations, told DTN recently. ABA is also getting professional support from the Podesta Group, a Washington, D.C. lobbying consultant described on its website as a "Beltway black belt." It recently briefed several nonfarm watchdog groups on its anti-FCS position.

Also this week members of the Independent Community Bankers Association "swarmed" Capitol Hill to persuade Congress to crimp Farm Credit's taxpayer support. Its official 2016 priorities include a resolution urging Congress to "either abolish the FCS, or at a minimum restrict the FCS to its historical mission of serving the agricultural marketplace" if FCS continues to expand into non-farm lending markets.

Todd Van Hoose, CEO of the Farm Credit Council, doesn't want to be drawn into constant rebuttals. But he takes exception to critics who charge Farm Credit with "mission creep"--broadening borrower eligibility beyond a narrowly defined band of farmers, ranchers and their ag cooperatives.

"They define our mission very differently than anyone else does," Van Hoose says, pointing out that the system has long been charged with serving rural communities and rural homeowners through good times and bad, farmers or not.

"Our mission is really clear. We serve all eligible farmers and institutions that support agriculture and rural communities," he says. "It doesn't say anything about poor farmers or rich farmers. We serve them all."

A $725 million loan to Verizon raised hackles with critics, but Congress authorized the system to diversify its ag-only portfolio on a limited basis nearly 25 years ago, so there was nothing illegal about that project, the system's regulator confirms.

To prevent a repeat of the 1980s credit crisis (when monoculture lending nearly felled the nation's largest ag lender), Congress granted FCS institutions ability to partner with commercial banks to finance "similar entity" loans back in 1992. Banks must initiate the offer. The restriction is those loans can't represent more than 15% of an individual institution's portfolio. Overall, they present less than 10% of Farm Credit's total accounts.

If Farm Credit has to step back from using this authority, it will mean less diversity in the system's loan portfolio and could result in the need for a more cautious approach serving ag during tough economic times, the Farm Credit Council argues.

Additional claims that the system ignores small producers "are so far from the truth, it's hard to believe," Van Hoose says. Of the system's 500,000 customers, 76% owe less than $250,000, a small loan for anyone trying to make a full-time farming. Almost 9 out of 10 owe less than $500,000.

Given the current farm economy, "I can't imagine a worse time to be discussing the deletion of the Farm Credit System," he adds. "These are the kind of times we were created for...You try to build strength in the good times to be there in the bad times."

Follow Marcia Taylor on Twitter @MarciaZTaylor


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Warren Graeff
5/6/2016 | 11:27 AM CDT
I agree with TLHoman. Remove the Farm Credit Systems tax exempt status and work on leveling the competitive position of banks and Farm Credit.
4/29/2016 | 7:24 AM CDT
When I was a kid everyone said that Farm Credit was a last resort. It was for guys that could not get financing anywhere else.
4/28/2016 | 6:16 PM CDT
Instead of taking away their ability to lend, why not make the Farm Credit systems pay taxes like other lenders are required to do? If the patronage is one of the things that sets them apart and gives them a competitive advantage to sweeten the deal to garner very large or very solid deals away from tax paying banks, make them support the gov't like others by paying the taxes that others pay. Patronage is likely to go down and the system is more fair for all trying to compete.