Pub. 4 2015 Issue 7

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 22 BERT ELY’S FARM CREDIT WATCH ® SHEDDING LIGHT ON THE FARM CREDIT SYSTEM, AMERICA’S LEAST KNOWN GSE ©2014 Bert Ely FCS continues to report misleading YBS lending data The FCS has long given lip-service to its lending to young, beginning, and small (YBS) farmers and ranchers, an obligation Congress imposed on the FCS in the Farm Credit Act. Young farmers are those 35 or younger, beginning farmers are those who have been farming 10 years or less, and small farmers are those with gross annual sales of less than $250,000. The Farm Credit Administration (FCA), the FCS’s regulator, routinely publishes data on the FCS’s YBS lending, but that data grossly overstates the FCS’s YBS lending because of the manner in which the data is reported. As the FCS admitted in its 2014 annual report on YBS lending, “borrowers may qualify under more than one category; one should not add Y,B, and S data together.” That is, an FCS loan to a 29-year-old farmer who has been farming for seven years and has annual farm sales of $220,000 is triple-counted in the YBS data. The FCA stated as much, that YBS data “counts are for loans, not for borrowers.” That is, YBS data is not aggregated by borrower. If the 29-year-old farmer in the example above has seven different FCS loans, say two land loans, a seasonal line of credit, and four equipment loans, FCS lending to that one farmer would count 21 times in the FCS’s YBS data. The FCS has acknowledged that it does aggregate its total credit exposure to its largest borrowers, so it certainly can do so for all of its borrowers. The FCS would be a very reckless lender not to do so, even for its smallest, youngest, and least experienced borrowers. A further flaw in the FCS’s YBS data – not everyone who borrows from the FCS is a farmer. It is well known, by bankers and others, that the FCS finances rural estates, hunting lodges, fishing camps, and other recreational properties; those loans get captured in the YBS data. For example, a 50-acre rural retreat owned for the last five years by a wealthy 33-year-old entrepreneur whose weekend farming activities generate $20,000 of farm income annually is hardly the YBS farmer Congress had in mind when enacting the YBS requirement. Even with this expansive definition of YBS lending, data published in the FCS’s Annual Information Statement indicates that the FCS increasingly tilts away from lending to YBS farmers and ranchers. Loans and loan commitments to young farmers, as a percent of total FCS loans and commitments, held constant, at 11.2%, from the end of 2013 to the end of 2014, but were down from 11.7% at the end of 2009. The numbers for beginning farmers are even worse – that loan-and-commitment percentage declined from 19.5% at the end of 2009 to 17.3% at the end of 2013 and to 17.1% at the end of 2014. Lending to small farmers showed a similar decline as a percent of total FCS loans and commitments – 24.4% at year-end 2009 to 21.3% at year-end 2013 to 20.0% at year-end 2014. As the FCS’s YBS data helps to demonstrate, the FCS increasingly focuses on lending to large borrowers.