The Farm Credit Facts Point to Optimism, Not Pessimism
The facts are clear: Farm Credit is strong and meeting new challenges head-on.
Is the Farm Credit glass half empty or half full? Should we be optimistic or pessimistic about the future? These days, with each bit of bad economic news, maintaining the proper perspective requires keeping a close eye on the facts, especially as they relate to agriculture and the Farm Credit System.
Half empty -- The preponderance of economic news is not good. Farm Credit is part of the global economy, and is not immune to some of the stresses that are occurring.
Half full -- AgriBank is strong and our District continues to perform well. We project that the District will make $1 billion this year and the Bank will make roughly $330 million, so profitability continues to be very strong. We’re well capitalized, well above both our regulatory requirement and traditional banks in all capital areas.
Half empty -- There is some deterioration in credit quality.
Half full -- Credit quality is still at very strong levels. Historically, Farm Credit has demonstrated its expertise in managing adverse credit. Some deterioration is to be expected with the cyclical nature of the ag marketplace.
Half empty -- Farm Credit is having to deal with fallout from the bank bailout. The government is providing guarantees to commercial lenders, at times making it difficult for Farm Credit to get its fair share of investors’ money to lend to farmers.
Half full -- We do not have any government guarantees. We don’t have any bailout money. Barring further market disruption, we can survive without it. But the government bailout has an impact on the environment out there. Our biggest concern is that the U.S. Treasury balance sheet is going to increase by trillions of dollars. That debt has to come from somewhere, and we have to compete for it. So that’s probably our biggest challenge right now. The good news is that Farm Credit’s ability to access funding is steady and improving. We’re able to compete because of our strength and our strong history. But it requires us to work harder to get the funds that are necessary to fulfill our mission. We’ll continue to look at alternative strategies to be able to have the access to funding that’s critical to agriculture.
Half empty -- Rural America is suffering. For example, farm equipment dealers are under stress at certain levels. Some manufacturers are restricting what they will finance, and are encouraging dealers to find other finance sources.
Half full -- Many manufacturers are pulling out of finance, leaving a void that Farm Credit is trying to fill. There is good coordination between the Associations to take a look at how to leverage that opportunity. Financing farm equipment has a higher risk than our traditional business but it is a risk that can be managed. An additional challenge is being able to fund that sector, while making sure we have enough capital to maintain our existing business and new initiatives. We believe that we have solutions to meet this need.
Half empty -- The continuing bad economic news adds stress to the daily activity at our Associations.
Half full -- We are continuing to see increased cooperation within the District. Associations are working with the Bank and with each other to meet new challenges. This has been very positive and has allowed us to be pretty nimble as we move forward. It reinforces that, within the System, we’re connected and dependent on each other. That becomes more apparent when things get tough, and generally brings out a more cohesive response to the challenges. That’s certainly what we’re seeing in our District.
Half empty -- Predicting the future is difficult.
Half full -- We’re prepared to deal with adversity. We’re proactively putting into place alternative solutions for the risks that may occur. We’re observing what’s happening, but we’re not going to wait for a crisis. We’re going to have in place a menu of alternative strategies and we will be prepared.
These are challenging times. But the facts ring true -- the Farm Credit glass is, indeed, half full.