Latest in Big Farm Credit Non-Ag Loans: Millions to a publicly-traded building material company

Even though the Farm Credit System (FCS) was established to help farmers, it often falls short, instead making questionable loans to large institutions that don’t need the support of a government-sponsored, taxpayer-backed entity like the FCS. Loans to a publicly-traded producer of industrial packaging products, a solar project to power Facebook, and to a lumber company trying to prop up a foreign venture are just a few of this ilk.

Add this latest loan to the ever-growing pile.

The Nashville Post reported this month that Louisiana-Pacific, a building materials manufacturer which produces engineered wood, has entered into an amended credit agreement with CoBank, the largest FCS institution, and American AgCredit for $550 million, with an option to increase that amount by $300 million.

What that gargantuan sum will be used for hasn’t been disclosed, but this loan is suspect for more reasons than just its purpose. First, Louisiana-Pacific is hardly a farm-related business; it’s a building materials manufacturer. It clearly isn’t a farm, and it’s not a farm-related business because it’s not furnishing “farm-related services to farmers and ranchers that are directly related to their agricultural production.” If Louisiana-Pacific is considered a farm-related business because it renders lumber into another product, then every tire producer should be considered farm-related because they render rubber (an agricultural product) into tires. The same rationale can be applied to clothing manufacturers rendering cotton or wool. This is hardly what Congress envisioned when passing the Farm Credit Act.

Second, Louisiana-Pacific is a publicly-traded company. It has access not only to the liquidity of public markets and exchanges, it has access to a variety of commercial lenders offering favorable terms that aren’t implicitly backed by the American taxpayer. Why should taxpayers be offering a guarantee to a company that brought in $2.7 billion in revenue and $499 million in profit in 2020?

The worst part about this specific arrangement is that it is entirely legal. The Farm Credit Act permits “banks for cooperatives” – in this case, CoBank – to lend to an entity that is not eligible for FCS financing but is considered a “similar entity” to a normally eligible recipient. Provided the similar entity “derives a majority of its income from, or has a majority of its assets invested in, the conduct of activities functionally similar to those conducted by the entity,” it is eligible for taxpayer-backed financing. This rule has led to loans by Farm Credit in the hundreds of millions to Verizon, AT&T, Frontier Communications, and US Cellular among many other large companies. Verizon, AT&T, Frontier Communications and US Cellular are all “similar” – or similar enough – to a rural telephone cooperative that Farm Credit is allowed to lend to them.

That idea sounds wrong to most people, and for good reason: those companies aren’t similar to small, rural cooperatives at all. And the same goes for CoBank’s whopping $550 million loan to Louisiana-Pacific, which is just another link in a long chain. A publicly-traded company with $2.7 billion in revenue and $499 million in profits does not need the support of a taxpayer-backed entity. Congress needs to revisit the similar entity rule to put a stop to loans like these and get Farm Credit to start focusing more on America’s farmers, ranchers and producers.

Latest in Big Farm Credit Non-Ag Loans: Millions to a publicly-traded building material company

Even though the Farm Credit System (FCS) was established to help farmers, it often falls short, instead making questionable loans to large institutions that don’t need the support of a government-sponsored, taxpayer-backed entity like the FCS. Loans to a publicly-traded producer of industrial packaging products, a solar project to power Facebook, and to a lumber company trying to prop up a foreign venture are just a few of this ilk.

Add this latest loan to the ever-growing pile.

The Nashville Post reported this month that Louisiana-Pacific, a building materials manufacturer which produces engineered wood, has entered into an amended credit agreement with CoBank, the largest FCS institution, and American AgCredit for $550 million, with an option to increase that amount by $300 million.

What that gargantuan sum will be used for hasn’t been disclosed, but this loan is suspect for more reasons than just its purpose. First, Louisiana-Pacific is hardly a farm-related business; it’s a building materials manufacturer. It clearly isn’t a farm, and it’s not a farm-related business because it’s not furnishing “farm-related services to farmers and ranchers that are directly related to their agricultural production.” If Louisiana-Pacific is considered a farm-related business because it renders lumber into another product, then every tire producer should be considered farm-related because they render rubber (an agricultural product) into tires. The same rationale can be applied to clothing manufacturers rendering cotton or wool. This is hardly what Congress envisioned when passing the Farm Credit Act.

Second, Louisiana-Pacific is a publicly-traded company. It has access not only to the liquidity of public markets and exchanges, it has access to a variety of commercial lenders offering favorable terms that aren’t implicitly backed by the American taxpayer. Why should taxpayers be offering a guarantee to a company that brought in $2.7 billion in revenue and $499 million in profit in 2020?

The worst part about this specific arrangement is that it is entirely legal. The Farm Credit Act permits “banks for cooperatives” – in this case, CoBank – to lend to an entity that is not eligible for FCS financing but is considered a “similar entity” to a normally eligible recipient. Provided the similar entity “derives a majority of its income from, or has a majority of its assets invested in, the conduct of activities functionally similar to those conducted by the entity,” it is eligible for taxpayer-backed financing. This rule has led to loans by Farm Credit in the hundreds of millions to Verizon, AT&T, Frontier Communications, and US Cellular among many other large companies. Verizon, AT&T, Frontier Communications and US Cellular are all “similar” – or similar enough – to a rural telephone cooperative that Farm Credit is allowed to lend to them.

That idea sounds wrong to most people, and for good reason: those companies aren’t similar to small, rural cooperatives at all. And the same goes for CoBank’s whopping $550 million loan to Louisiana-Pacific, which is just another link in a long chain. A publicly-traded company with $2.7 billion in revenue and $499 million in profits does not need the support of a taxpayer-backed entity. Congress needs to revisit the similar entity rule to put a stop to loans like these and get Farm Credit to start focusing more on America’s farmers, ranchers and producers.

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