Pub. 3 2014 Issue 8

November 2014 23 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s FCS loans are owners of country estates with minimal, if any, farm sales, weekend farmers with substantial non-farm income, such as doctors and lawyers, or hunting and fishing clubs who financed their property with an FCS loan. As one FCS association president told me years ago, if the land has the “potential” to be farmed, the FCS can finance it. In her June 25, 2014, testimony to a House Agriculture subcommittee, FCA Chairman Jill Long Thompson claimed that the FCS “continued to show gains in loan dollars outstanding and loan numbers outstanding to YBS producers,” yet she provided no insight into who these borrowers really are, such as doctors, lawyers, and hedge-fund managers. She then stated that “despite these gains, YBS results as a percentage of the [FCS’s] total farm loans have either declined or remained flat over the past few years. These results likely reflect the shrinking pool of YBS farmers in the United States.” While the Ag Census reported that the number of farms with annual sales of less than $250,000 shrank 6.7% from 2007 to 2012, to 1.854 million farms, it is clear from the YBS data that few of those farmers borrow from the FCS, or at least they are not identified as such. As FCW readers know so well, most of the FCS’s outstanding loan balance, as well as its loan growth in recent years, has come from large agricultural enterprises as well as non-farm businesses. FCS consumer lending exploding An analysis of the FCS’s YBS data published in the FCS Annual Information Statement shows an interesting trend in recent years – the number of loans under $50,000 to borrowers other than small farmers have exploded in recent years, rising from 140,667 at the end of 2007 to 156, 893 at the end of 2010, to 187,832 at the end of 2012, and 215,634 at the end of 2013. The average size of these loans grew from $16,514 in 2007 to $22,501 last year while the aggregate amount of these loans more than doubled, rising from $2.32 billion at the end of 2007 to $5.89 billion at the end of last year. These loans do not represent a significant amount of total FCS lending – less than 3% at the end of last year – but this lending category is growing faster than total FCS lending, and may be quite profitable. Similar growth in loans to non-small-farmers was seen for loans in the $50,000 to $100,000 size range. These loans rose in number from 62,115, for $3.67 billion, at the end of 2007 to 72,646, for $5.41 billion, at the end of 2013. The average loan size grew from $59,020 to $74,457. Some of these loans may be to farmers not classified as YBS borrowers, but given the high level of farm income in recent years, larger farmers are more likely to pay cash for smaller equipment purchases. Some of these loans may be to non- farmers eligible to borrow from the FCS. More likely, though, much of this growth in small loans has stemmed from FCS associations lending to borrowers ineligible to borrow from the FCS or from FCS indirect lending programs, such as AgDirect, that clearly reach out to borrowers ineligible to borrow directly from the FCS. Other loans may simply be consumer loans that banks should be making. The FCA needs to explain who these non-small-farmer borrowers are while clamping down on this especially egregious lending abuse by FCS associations. At the other end of the lending spectrum, individual loans and loan commitments over $1 million to non-small-farmers have grown steadily as a percentage of total FCS loans and commitments, from 61.2% of total FCS loans and commitments at the end of 2007 to 66.0% at the end of 2013. The average size of these loans also rose over that six-year period, from $1.087 million to $1.238 million. Of course, as noted above, the FCS does not report loan data aggregated by borrower, so FCS credit exposures to individual large borrowers are much greater than these individual loan amounts. FOIA request filed with Treasury Department Pressing on in my investigation of the $10 billion line-of- credit the Farm Credit Insurance Corporation (FCSIC) secretly obtained last year from the Treasury Department’s Federal Financing Bank, I have finalized a Freedom of Information Act (FOIA) request with the Treasury Department to conduct an extensive search of its records pertaining to the creation of that line of credit. There will be a cost associated with this search, but it will be worth it if it produces further insights as to how this line-of-credit came to be created.