Is Farm Credit Prepared for a Systematic Failure?

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It’s no secret that agriculture is hard, especially for young, beginning and small farmers who have fewer resources at their command. If a downturn is imminent, will the Farm Credit System (FCS) be able to weather the storm?


According to a recent report by the Financial Times, shaky land values are propping up borrowing by farmers now, but that could soon change. The report states in no uncertain terms that loan “delinquencies are also creeping up inside the government-sponsored Farm Credit System, which accounts for 40 percent of US farm debt.”

That’s not great news, but it’s not the whole story, which paints a bleak picture for the System. The System alone holds 40 percent of US farm debt, but according to the Kansas City Federal Reserve, its share of agricultural real estate loans is just under 55 percent. Farm Credit is especially sensitive to shake-ups in the agricultural real estate market because it holds an oversized portion of that market.

In recent testimony before the House Appropriations Subcommittee on Agriculture, the FCS’s regulator, the Farm Credit Administration (FCA), assured members of Congress that “Overall, the System is safe and financially sound.”

But in light of this news, how can the FCA be so sure? With Farm Credit institutions like Lone Star Ag Credit reporting “appraisal and accounting irregularities affecting a segment of the Association’s lending portfolio,” can the FCA say for certain that the System is truly safe and sound?

Farm Credit holds a majority share of the agricultural real estate lending market. If farmers are stuck in a bad market and can’t make their payments, what happens then? Will they be able to make their mortgage payments? If not, how will Farm Credit prevent farms from failing? How will it prevent itself from failing?
Farm Credit needs to be well-prepared for a systemic failure. There are signs of trouble, and those signs are compounded by the FCS’s more-than-majority share of the agricultural real estate lending market. And even though its regulator assures Congress that the system is safe and sound, members of Congress need to exercise regular oversight to make sure that the system is safe, and that taxpayers won’t have to foot the bill if it isn’t.