05.19.16

Chairman Roberts Examines the Farm Credit System in Rural America

WASHINGTON, D.C.  - U.S. Senator Pat Roberts, R-Kan., Chairman of the Senate Committee on Agriculture, Nutrition and Forestry, today held a hearing on the Farm Credit System. 

The hearing, titled “The Farm Credit System: Oversight and Outlook of the Current Economic Climate,” had two panels. For witness info, testimony, and to watch the hearing live, click here. 

“Farmers and ranchers all across the country are experiencing difficult economic conditions as farm sector profitability is forecast to decline for the third straight year,” said Chairman Roberts. “Over the past three years alone, net farm income is expected to decline by 56 percent.” 

“For farmers, every year is a high stakes bet as they put their confidence in their crops, livestock, and the business decisions they make throughout the year. While farmers continue to manage their risk through a period of low commodity prices and stubborn high input prices, it is important we begin discussions regarding next year’s borrowing decisions.” 

“To date, the Farm Service Agency has seen a 21 percent increase in farm loans as compared to last year – a further troubling indication of a struggling agricultural economy.” 

The following is Chairman Roberts’ opening statement as prepared for delivery: 

Good morning members of the Committee. I call this hearing of the Senate Committee on Agriculture, Nutrition and Forestry to order. 

Today’s hearing will examine the overall climate of credit in rural America, the health of Ag lending from both the commercial bank and Farm Credit System perspectives, and what impact the current credit environment is having on our nation’s farmers. We will also examine whether the Farm Credit Administration is exercising appropriate oversight of the Farm Credit System. 

Farmers and ranchers all across the country are experiencing difficult economic conditions as farm sector profitability is forecast to decline for the third straight year. Over the past three years alone, net farm income is expected to decline by 56 percent. 

As our nation’s farmers and rural communities continue to deal with low commodity prices and elevated input costs, access to affordable credit in rural America is as important today as ever. 

The spring 2016 Agricultural Lender Survey released by Kansas State University’s Department of Agricultural Economics expects the credit environment for farmers to remain difficult for at least a few more years. 

Lenders indicate that demand for operating loans will continue to remain high, as liquidity and cash flow are problematic for many farmers. Further, non-performing loans have increased and are expected to continue in this unfortunate trajectory due to low commodity prices. 

In addition to the lender survey, the Federal Reserve Bank of Kansas City painted a similarly bleak projection of farm-sector credit conditions for the first quarter of 2016.  Lenders note an increasing share of farmers carrying over outstanding debt from previous years, with an increased demand for loans and weakening repayment rates.  

For farmers, every year is a high stakes bet as they put their confidence in their crops, livestock, and the business decisions they make throughout the year. While farmers continue to manage their risk through a period of low commodity prices and stubborn high input prices, it is important we begin discussions regarding next year’s borrowing decisions. 

There is no doubt today’s discussion is timely, especially considering it has been just under a  decade since we have had representatives from either the banking industry or the Farm Credit System before the committee to discuss some of the issues we will cover today. 

Rural America relies on a network of credit providers consisting of the private sector and the Farm Credit System. 

Created under the Federal Farm Loan Act of 1916, the Farm Credit System is a nationwide system of privately owned, cooperative lenders statutorily required to provide farmers and other rural borrowers with a permanent and affordable source of credit. 

Currently, the Farm Credit System is comprised of 74 Agricultural Credit Associations and four regional banks, which provide the Ag Credit Associations with funds to make loans to producers and other retail borrowers. 

The agency tasked with regulating the Farm Credit System is the Farm Credit Administration (FCA). The Farm Credit Administration is an independent agency comprised of a three-member board nominated by the President, and as we all know, confirmed by the Senate through our committee. 

Like the banking industry, the Farm Credit System is not a lender of last resort. The lender of last resort for farmers who are otherwise unable to secure private financing is USDA’s Farm Service Agency. Commercial banks and the Farm Credit Service often rely on USDA farm loan guarantees to make loans when borrowers are less credit worthy. 

To date, the Farm Service Agency has seen a 21 percent increase in farm loans as compared to last year – a further troubling indication of a struggling agricultural economy.  

Much has changed since Congress established the Farm Credit System 100 years ago. 

One thing that has not changed, however, is the importance of providing farmers and other rural borrowers with easily accessible and affordable credit. 

I, along with a number of my colleagues on the Agriculture Committee, remember very well the difficult times for the farm economy during the 1980s. No one wants to see a repeat of those dark days.  

I look forward to hearing from our two distinct panels of witnesses regarding the landscape of the current economic conditions in farm country, and what is working or needs improvement from a legislative perspective to protect the financial well-being of our farmers and our rural communities. 

Before we hear from our witnesses, I recognize Ranking Member Stabenow for any opening remarks. 

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