Pub 7 2018 Issue 5

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 16 BERT ELY’S FARM CREDITWATCH® D ESPITE THE FCS’S SUPPOSED EMPHASIS on lending to young, beginning, and small (YBS) farmers and ranchers, data in the FCS’s annual information statement for 2017 documents the declining importance of small borrowers to the FCS over the last several years. Although total FCS lending from year-end 2015 to year-end 2017 increased $22.9 billion, or 9.7 percent, the total amount lent to those who borrowed less than $250,000 was essentially flat, rising to $32.93 billion at year-end 2016 from $32.64 billion at the prior year-end (13.8 percent of total FCS lending) and then dropping to $32.85 billion at the end of 2017, just 12.7 percent of total FCS lending. The FCS had 423,591 borrowers in this loan-size category at year-end 2017. However, a substantial portion of the $208 million increase in borrowings under $250,000 over that two-year period may have been accounted for by the $144 million increase in FCS rural home loans as most of those loans should have been under $250,000. FCS lending in the next two borrower-size categories — $250,000 to $500,000 and $500,001 to $1 million — showed a similar flatness in outstanding loans. Total loans in the smaller of these two categories grew just $614 million, or 2.9 percent, over the two-year period, while total loans in the larger category grew $753 million, or 3.1 percent. Some of the borrowers in these categories may have moved into the larger loan categories as they grew their farming or agribusiness operations. Over that same two-year period, though, FCS lending to its largest borrowers, fewer than 1,000, increased dramatically. At the end of 2015, the FCS had just 804 borrowers with at least $25 million in loans outstanding. Collectively, they had borrowed $71.3 billion, 30.2 percent of all FCS lending. Two years later, at the end of 2017, the FCS had 982 borrowers who had borrowed at least $25 million, for total borrowings of $85.26 billion, 32.9 percent of total FCS lending. Not only are the FCS’s largest borrowers becoming more numerous — a 22 percent increase in just two years — but their share of FCS borrowing increased by 2.7 percentage points. I suspect many of these large borrowers are agribusinesses and utilities, not farmers or ranchers. The next smaller loan-size category, $5 million to $25 million, showed a similar result, an increase of 311 borrowers, to 3,965, at year-end 2017 from 3,654 at year-end 2015. Their borrowings rose less dramatically, from $35.95 billion at year- end 2015 to $38.84 billion two years later, accounting for 15 percent of total FCS lending. This contrast shows the extent to which the FCS is increasingly focused on lending to the largest farming and agribusiness operations in the United States, the farms, ranches, and businesses least in need of the taxpayer subsidy provided by the FCS. There is some good news, though — the FCS only had one credit exposure in the $1 billion to $1.5 billion size range at the end of 2017, down from two such exposures at the end of 2016. FCS YBS lending data reported by the Funding Corporation tries to tell a different story, keep in mind that the FCS erroneously reports YBS data. For example, a loan to a young (Y) farmer (under 35) who has been farming 10 years or less (B) and has less than $250,000 in annual gross sales of agricultural products (S) will get counted three times in the YBS data — once as a Y, once as a B, and again as an S. If he or she has three FCS loans outstanding, say a real estate loan, an operating loan, and an equipment loan, that person will be counted nine times in the FCS’s YBS data even though that borrower would get counted just once in the lending data cited in the preceding paragraphs. This multiple counting severely exaggerates the extent of the FCS’s YBS lending. For example, the FCS reports that the aggregate amount of individual loans to young farmers and ranchers increased 4.7 percent from year-end 2016 to year-end 2017; loans to the overlapping group of beginning farmers increased 4.4 percent over the same time period; and loans to small farmers increased 2 percent. The differences between the more favorable YBS data and loan data by the size of the total amount borrowed strongly suggests that the FCS needs to begin aggregating the total amount borrowed FCS REDUCES LENDING TO SMALLER BORROWERS EVEN AS IT GROWS