A. The Farm Credit System is a borrower-owned, permanent system of agricultural credit and rural credit for smaller communities across America. Currently we serve nearly 500,000 qualified member-borrowers nationwide. We provide more than $200 billion in loans, leases and related services to farmers, ranchers, rural homeowners, aquatic producers, timber harvesters, agribusinesses, and agricultural and rural utility cooperatives. Established in 1916 by Congress, and now a Government Sponsored Enterprise, the System provides more than 40 percent of the credit needed by those who live and work in rural America.
A. As stated in the Farm Credit Act, Farm Credit's mission is, "…making credit available to farmers and ranchers and their cooperatives, for rural residences, and to associations and other entities upon which farming operations are dependent, to provide for an adequate and flexible flow of money into rural areas... to meet current and future rural needs."
The System's mission is to serve all types of agricultural producers who have a basis for rural credit, as well as others who help ensure that agriculture and rural America are economically successful. This includes farm-related businesses, rural homeowners, rural infrastructure providers, including electric, telecommunications, water and waste, as well as other rural service providers.
A. For nearly 100 years, Farm Credit has been solely dedicated to helping farmers, ranchers and rural communities. Our owners are our customers, and our customers know they can depend on Farm Credit's expertise and commitment in good times and bad.
Our cooperative structure is important to customers because it means they have a say in how Farm Credit does business. As cooperatives, Farm Credit institutions often return their earnings in the form of patronage to borrower-owners.
Farm Credit institutions do not take deposits from local communities. Instead they tap the national and international money markets bringing new capital into rural America to be put to work to enhance the local economy. Often, Farm Credit organizations partner with banks in serving rural communities. It takes a lot of capital to build the infrastructure necessary to ensure rural America has access to broadband and reliable electricity and phone service. Farm Credit institutions also compete with banks for customers in rural America. This competition is good for borrowers, consistent with what Congress intended Farm Credit to be and provides choices in rural markets.
A. Young, beginning and small producers are vital to the economic health of agriculture and rural communities. Farm Credit offers programs to help these producers get started and remain successful in their farming and ranching businesses. Education and mentoring are vital elements of Farm Credit's programs and participants are encouraged to work closely with Farm Credit staff to build financial management skills as they develop their operations.
Farm Credit institutions are the only lenders that collect data on their lending to young, beginning and small farmers. While USDA recently increased the income threshold in its definition of a small farm to $350,000 of gross farm income, Farm Credit has maintained our definition of small farm as those with $250,000 of gross farm income. At the end of 2013, almost half of the number of loans outstanding in the System had been made to these small farmers. More than 16 percent of the loans made by the System in 2013 were made to individuals 35 years old or younger. This represents a great record of service since, according to the 2012 Census of Agriculture, only 6 percent of principle farm operators are 35 years old or younger. In fact, the majority of loans made by Farm Credit institutions are small loans. In 2013, 83 percent of the loans made were for less than $250,000; almost 55 percent of all loans made were for $50,000 or less. Clearly Farm Credit's record of providing rural credit and agricultural credit to young, beginning and small operators is one Farm Credit is proud of and looks to continue in years ahead.
While young, beginning and small farmers are a large part of Farm Credit's portfolio, the System was not created to serve only these customers. The System's mission is to serve all types of agricultural producers who have a basis for agricultural credit or rural credit, as well as others who help ensure that agriculture and rural America are economically successful. This includes farm-related businesses, rural homeowners, rural infrastructure providers including electric, telecommunications, water and waste, as well as other rural service providers.
A. Recognizing the growing need for capital in rural areas, some Farm Credit institutions also provide loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers nationwide. In addition, Congress has authorized Farm Credit to participate in loans to "similar entities" – parties not directly eligible for Farm Credit loans, but with operations "functionally similar" to the activities of eligible borrowers. For example, Farm Credit can directly lend to a value-added food processing firm owned by a farmer or a farmer cooperative, but can only participate in a loan made by a commercial bank to a non-farmer owned food processing operation.
Similar entity loans are limited in number, reviewed by Farm Credit's independent federal regulator, and have restrictions, including a stipulation that Farm Credit must hold less than 50 percent of the loan. As such, the majority of these loans are actually held by commercial banks in partnership with Farm Credit. By allowing this limited ability to diversify the concentration risk posed by Farm Credit's narrow authority, Congress sought to ensure the System was better able to fulfill its mission of service to agriculture and rural America.
A. In addition to providing agricultural and rural credit to farmers and ranchers, Farm Credit – and more importantly, our customers – believe that insurance, tax planning and other related services are vital to life in rural and agricultural communities. Farm Credit has helped farmers keep going in the face of personal and natural disaster through our insurance programs, and customers know that tax planning is an essential element of their farm and ranch decision-making. We are proud to offer our customers a diverse range of products and services to help ensure the health and well-being of American agriculture. Service offerings vary between associations and banks. Check with your local Farm Credit representative for more information.
A. Congress has established multiple Government Sponsored Enterprises, or GSEs, to enhance the flow of credit to targeted sectors of the economy, this includes agricultural credit and rural credit. The Farm Credit System was created in 1916 to provide a customer-owned, stable and reliable source of debt capital serving the agricultural sector and rural America. The System operates without any direct financial support from the federal government.
Having GSE status means that the Farm Credit System has certain characteristics that allow it to consistently access that national debt markets to benefit agriculture and rural America. Farm Credit shares some of these characteristics with the other GSEs but is very different from them. Congress created the Farm Credit System because they did not want agriculture and rural areas to be held hostage by banks. Congress wanted a cooperatively structured institution owned by the borrowers that rely on them. Farm Credit is the only GSE specifically established to provide direct competition to commercial banks to ensure that rural areas have access to reliable, competitive credit. Farm Credit has substantially higher capital requirements than the other GSEs, higher regulatory costs, no direct line to the Treasury, no publicly traded stock and is the only self-funded insurance fund.
Commercial banks have their own access to GSE funds. They use Freddie Mac and Fannie Mae for funding housing loans, Farmer Mac to fund farm loans and they have majority ownership of the Federal Home Loan Bank System that provides them advances to fund housing, small business and farm loans. The taxpayers directly backstop their deposits that they use to fund other lending. The bottom line is that commercial banks have more direct taxpayer backing than does Farm Credit.
A. Farm Credit System institutions are regulated by the Farm Credit Administration (FCA), an independent federal agency. Members of Farm Credit Administration's Board of Directors are appointed by the President of the United States at the advice and consent of the Senate. The Farm Credit System pays for the cost of FCA, which examines System institutions and writes the regulations that govern the operations of Farm Credit System institutions. In addition, System institutions support their own insurance fund that protects investors that buy System consolidated notes and debentures used to fund credit operations.
A. The American Farm Bureau Federation (AFBF), often simply called Farm Bureau, is not affiliated with the Farm Credit System. Farm Credit institutions work closely with state Farm Bureau chapters as well as the AFBF in advocating on behalf of agriculture and supporting education programs for young and beginning farmers. Farm Credit is proud to provide support to Farm Bureau for these efforts through the National Contributions Program.
The Federal Agricultural Mortgage Corporation (Farmer Mac) is distinct from Farm Credit. Farmer Mac provides a secondary market for farm mortgages originated by commercial banks and other lenders. It is a separate corporate entity with its own charter as a GSE, its own balance sheet and separate board of directors and management. Farmer Mac is regulated by the Farm Credit Administration and has publicly traded stock that also makes it subject to oversight by the Securities and Exchange Commission.
Farmer Mac is not included in the combined financial statements of the Farm Credit System. Farmer Mac is not liable for the Consolidated System-wide Debt issued by the Federal Farm Credit Banks Funding Corporation on behalf of the four Banks of the Farm Credit System. Farmer Mac issues its own notes and bonds to fund their operations. Farmer Mac debt is not rated.
A. Farm Credit aggressively competes in the marketplace for agricultural and rural loans every day, in good times and bad. We work hard to find customers of all types.
Farm Credit is, by law and by policy, an equal opportunity lender. The System's mission is to provide a dependable and competitive source of funding to help ensure the well being of American agriculture. Many rural families and communities reflect and represent minority populations, and Farm Credit institutions work with them on the same basis as we would with non-minority customers.
A. The Federal Farm Credit Banks (FFCB) Funding Corporation is the agent for the Farm Credit System banks. Because the System does not accept deposits, the System relies on the Funding Corporation to raise money for loans and leases through the sale of debt securities in the domestic and international money market.
The Funding Corporation partners with a select group of investment and dealer banks that provide underwriting, trading and distribution capabilities. Investors can contact a representative of one of the firms in the Selling Group or their local broker or investment manager for information on purchasing specific Farm Credit securities. In addition, some bonds are offered to individual investors.
The System's size, structure and performance have earned it the worldwide support of investors who continue to finance U.S. agriculture and rural America by purchasing System-wide Debt Securities. The Farm Credit System allows rural areas to benefit from both national and international capital markets by moving this capital efficiently from those national markets into rural communities.
A. Farm Credit has been rural America's trusted partner since 1916. As a borrower-owned cooperative, we understand the needs of and care more about our customers than any other lender. Farm Credit brings reliable access to agricultural credit and rural credit to finance the vital operations that make America thrive. We are dedicated to improving the quality of life in rural America and our people care deeply about our borrower-owners and their industries. With Farm Credit, you have unparalleled access to knowledgeable experts, responsive support and a dedicated partner.
A. Most commercial-sized farming operations, which produce the majority of our food and fiber, require substantial agricultural credit. Even a modest 15-acre strawberry operation requires credit that can exceed a million dollars, between land, equipment, plant purchases and soil requirements. According to USDA Economic Research Service analysis, large-scale family farms that produced close to 40 percent of all agricultural production in 2011 had average agricultural debt that exceeded $1.1 million per family farm.
The reality of modern agricultural production and the modern rural economy requires that large loans be made to finance successful projects and businesses that create jobs and provide for the quality of life in rural America. It takes a lot of capital for rural infrastructure providers to deliver services in rural communities. Agricultural cooperatives and other agribusinesses that store or add value to the agricultural products of farms or that provide necessary inputs to farmers have substantial capital needs as well.
Adequate supplies of competitively priced agricultural credit and rural credit are the lifeblood of the rural economy. Congress charged Farm Credit institutions with the mission of helping to ensure that supply is always available irrespective of market conditions. The credit needs in rural America are greater than either commercial banks or the Farm Credit System can finance alone. Accordingly, the Farm Credit System works with commercial banks across America on a daily basis to meet the needs for vital capital.
Whether Farm Credit is providing financing for a rural electric cooperative, a rural water system, a rural telephone company, an agricultural cooperative, or to individual farmers and ranchers, all of this activity is enhancing the rural economy.
A. Liquidity is the lifeline for financial institutions. Prior to 2013, Farm Credit institutions were the only U.S. financial institutions without a direct Federal backstop ensuring continued access to funding. In fact, the Farm Credit System is the only Government Sponsored Enterprise (GSE) that does not have a direct statutory backup line of credit with the Treasury.
Recognizing that such a situation was at odds with the congressionally mandated mission to ensure credit availability for agriculture and rural America, the Farm Credit System Insurance Corporation (FCSIC) initiated an interagency discussion with Treasury and the Federal Financing Bank (FFB) to explore whether the FFB could provide liquidity under exigent circumstances to support FCSIC in fulfilling its responsibility to ensure investors in System debt are repaid in a timely manner.
The FCSIC liquidity line is limited to providing access to capital when the funding markets are somehow compromised. The goal is to provide liquidity in the event that financial markets stop working and can be accessed only after the assets of the Insurance Fund and other System liquidity have been committed.
The liquidity line is a best practice and key to any sound liquidity risk management program. Today, the System's sound business practices, size, structure and performance have earned it the worldwide support of investors, who continue to finance U.S. agriculture and rural America by purchasing
System-wide Debt Securities. The liquidity line is not a sign of financial weakness on the part of the Farm Credit System. Instead it is a sign of prudent planning for what would be an economically challenging scenario.
A. Most System institutions operate consistent with Subchapter T of the Internal Revenue Code. Farm Credit income is either passed through to customer-owners as patronage dividends and taxed as personal income of those owners or retained to capitalize additional lending to agriculture. A cooperative is a business that is owned and governed by the people who use its services. Earnings are allocated or retained to the advantage of members rather than returned to outside investors based on equity. The Internal Revenue Code recognizes the pass-through nature of a cooperative by providing for the single Federal income taxation of earnings generated on business conducted on a cooperative basis. All direct lending System institutions are taxable on the income derived from a considerable part of their business. In addition Farm Credit does not receive direct taxpayer subsidies.