As ag swoons, Farm Credit System booms
On Feb. 28, the agriculture subcommittee of the U.S. House of Representatives Appropriations Committee held a “Farm Credit Administration Oversight Hearing.”
Remarkably, it was the first public questioning of FCA leaders — and how they regulate the nation’s biggest agricultural lender, the $240 billion Farm Credit System — by the subcommittee in 19 years.
In the intervening, unchecked decades, System banks more than doubled their lending (from $106 billion in 2005 to $236 billion in 2015), increased their share of U.S ag debt by half (from 23.3 percent in 2000 to 40.4 percent in early 2016), and rose to dominate ag lending: 16 of today’s top 20 American ag lenders are System members.
Another FCS lender is about to join that club.
Beginning last summer, three System associations — AgStar Financial, the huge lender in Minnesota and western Wisconsin; Badgerland Financial, the FCS lender in Wisconsin’s southern half; and 1st Farm Credit, the lender in western and northern Illinois — have worked to create a single association that would stretch from east of St. Louis to north of St. Paul.
If the not-yet-public plan is approved by association borrowers-owners in a very quick, hoped-for April vote, the resulting $18 billion lender would be named Compeer Financial.
It would also largely unnecessary, says Bert Ely, a banking consultant that writes “Farm Credit Watch,” a fact-filled, monthly analysis of the FCS for the American Banking Association.
“Part of all these merger deals seems to be one-upmanship among System bankers,” explained Ely in a March 1 telephone interview. “Another part is that these mergers enable CEOs to pay themselves much bigger salaries.”
Millions in the case of the proposed, three-way upper Midwest deal.
“I’m very skeptical, however, that any system merger leads to greater lender profits or better lender service.”
Ely would know; he’s been analyzing and writing about the Farm Credit System since before its mid-1980s crack-up and subsequent government bailout. Recently, he’s seen System banks balloon into something bigger and richer than Congress ever envisioned.
“The System’s credit line has increased and increased to now where one member can borrow up to $1.5 billion,” he relates. “What farmer do you know borrows $1 billion? Clearly, it isn’t meant for farmers or ranchers.”
Recent System lending proves Ely correct. In the last decade, several FCS banks loaned money to various non-farm businesses and corporations — including Verizon, the Cracker Barrel restaurant chain, and a carwash, according to an April 2016 Washington Post story — whose tenuous ties to agriculture seem to be the forgotten uncle of great-grandma’s adopted half-sister.
All this rule-stretching, claims Ed Elfmann, the vice president of Congressional relations for the American Bankers Association, violates the System’s taxpayer-supported mission and allows System lenders to unfairly compete against commercial banks in local, regional and national ag lending markets.
“Even worse, I think,” offers Elfmann, “Farm Credit has doubled its lending in the last 10 years with virtually no oversight and no controls. How will it hold up if the farm economy continues to flag?”
System bankers quickly note that their balance sheets are solid, at least for now.
What they don’t talk about, however, is how their special status as a Congressionally-chartered lender — and what Elfmann and Ely both say is lax oversight by both the Farm Credit Administration and Congress — allows System banks to pick big winners in Big Ag and Big Agbiz.
“Given the size of most of today’s System loans,” opines ABA’s Elfmann, “can taxpayer-subsidized financing be justified for any of these massive borrowers?”
That’s a good question for the tight-fisted, Trump-bowing Congress to address in 2018 Farm Bill hearings.
Before then, however, the borrower-owners of the not-yet-merged Compeer Financial should ask their hired hands at AgStar, Badgerland and 1st Farm Credit just how much the new bosses will be paid and how little the new deal delivers to them and their rural communities.
The Farm and Food File is published weekly throughout the U.S. and Canada. Source material, past column and contact information are posted at farmandfoodfile.com.