Agricultural Lending

Agricultural Lending Market

Commercial banks continue to be highly competitive in the agricultural credit market; however, there are a number of other influential participants, some of which have increased their involvement in recent years. These include:

• Farm Credit System (FCS). The FCS is comprised of cooperative institutions regulated by a federal, arms-length regulator, the Farm Credit Administration. FCS retail lending (to individual farmers) is centered in local farm credit associations. Wholesale lending (to FCS institutions) is shared between the Farm Credit System Funding Corporation and the regional farm credit banks. The FCS relies exclusively on bonds to fund its lending operations. The liability for FCS bond underwriting is jointly and severally shared by the farm credit banks and is guaranteed by the Farm Credit System Insurance Corporation. The bonds are high quality and similar to U.S. Treasury securities, but, as with many agency-issued securities, they are not backed by the full faith and credit of the U.S. government. They are purchased primarily by financial institutions. FCS lenders traditionally have been most competitive in the agricultural real estate market, because they can issue long-term bonds to offset their interest rate exposure on long-term mortgages.

• Farm Service Agency (FSA). The FSA, formerly known as the Farmers Home Administration, is the agency within the U.S. Department of Agriculture that administers federal agricultural lending programs. (A description of the federal loan and guaranty programs can be found in Appendix A.) FSA loans are funded from the Department of Agriculture’s budget and from funds repaid by borrowers. The Farmers Home Administration traditionally had been the lender of last resort in agriculture and had focused on loans for rural development and rural housing. Recently, however, budget austerity has caused the FSA to focus its resources more narrowly on serving small, less experienced, and disadvantaged farmers.

  • Life Insurance Companies. These companies lend primarily to corporate agricultural enterprises — generally, borrowers financing amounts greater than $1 million.

  • Other lenders include parents financing their children into agriculture, landlords providing self-financing for their tenant farmers, and captive lenders. Captive lenders, such as equipment dealers, seed companies, and retailers normally provide limited-purpose credit to enhance market penetration for their primary products, such as farm machinery and seed.

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