Pub. 5 2016 Issue 9

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 18 ©2016 Bert Ely BERT ELY’S FARM CREDIT WATCH ® FCS LENDERS DOMINATE A RANKING OF THE LARGEST AG LENDERS F CS INSTITUTIONS DOMINATE the ranking of the nation’s largest ag lenders. This growing domination reflects the dramatic growth in the FCS’s share of total farm debt as reported in last month’s FCW. For more information please visit http://bit.ly/2fG0UOV for an integrated listing of the nation’s 100 largest commercial bank ag lenders and the 78 FCS banks and associations, as of June 30, 2016. Of the 20 largest ag lenders, 16 are FCS institutions and only four are commercial banks – Wells Fargo, Rabobank, Bank of the West, and Bank of America. Of the 100 largest ag lenders, 58 are FCS institutions and 42 are commercial banks. At the bottom of the list, only seven FCS direct-lending associations have a lesser amount of ag loans on their books than the 100th largest commercial bank ag lender. Given the pace at which FCS associations are merging, smaller FCS associations will continue to disappear into larger associations. The forthcoming merger of AgStar, 1st Farm Credit, and Badgerland (reported in last month’s FCW) is just the latest example of consolidation within the FCS. Based on June 30, 2016, data, the merged association, to be called Compeer Financial, will be the third-largest FCS association and the third-largest ag lender in the United States. The right column in the linked table – farm loan concentration – highlights a very unhealthy trend in U.S. ag lending – a larger and larger portion of ag loans are held on the books of FCS institutions that, by virtue of their congressional charter, are highly concentrated in ag lending. If American agriculture was to again experience financial distress comparable to what it experienced in the 1980s, that distress could easily be reflected in the finances of the FCS. The preventative for avoiding a repeat of the 1980s is not to broaden the lending powers of FCS institutions but instead to level the competitive playing field between commercial banks and the FCS, which will not only lead to a shift of ag lending to commercial banks, but it will give rural banks an opportunity to grow their loan portfolios. The totals at the bottom of the table are quite informative, too, as they contrast the total amount of ag lending by the FCS institutions with the ag lending by the 100 largest commercial bank ag lenders. The FCS institutions dominate farm real estate lending, with more than three times as much of such lending as the commercial banks. This dominance reflects two key competitive advantages that FCS lenders enjoy – their profits on loans secured by real estate are exempt from federal and state income taxation and the