Situation and outlook report. Agricultural finance

54 Pages·1991·8.3 MB·English

Historic, Archive Document
Do not assume content reflects current
scientific knowledge, policies, or practices.

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United States _ :
Agriculture
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AFO-40 7
Situation and Po
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Outlook Report Sane
Annual Change in Farm Debt
$ billion
30
20
10
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Contents
SUIMIMANY ".n ccccenntoreceetor Maegatecelouage tensruiaan cnt esgiags sntdorateehtacats ts aaeeet eee epee 3
Agricultural Income and Finance General Economy
Situation and Outlook. Agriculture Recession and Persian Gulf Dominate Economic Scene..............0:0 4
and Rural Economy Division, Economic
Research Service, U.S. Department of Lender Overview
Agriculture, February 1991, AFO-40.
Improvement Continues it 1990s. <.cicc5c2-psesesnssecsoeaoc-carsyecasocnsteseseetes 6
Guarded Optimism Overall for 1991 s0s...-.22..)cttseserdsestssescs .ece s7
Farm Credit Access Ample for 1991 .................:sscccccsssssercecesssnereeeeseesneeeeees 8
Further Moderation of Agricultural Interest Rates Expected in 1991 ......... 9
Current Lender Loan Portfolios
Commercial Banks Hold Largest Share of Farm Loans .................::es008 10
Agricultural Lender Situation
Performance of Agricultural Banks Strong ..............ccesccssseecsseeeeeereeseenes 12
Current Trouble Spots: Big Banks and Real Estate.e.ee. eeee eees 14
Small Banks Dominate Agricultural Lending................csscecssssseeeceereeeees 16
Farm Credit System Size Stabilizing, but Changes Continue.................. 18
Farm Credit System District Performance VarieS ...............sscceseenneeees 20.
Farmers Home Administration Direct Lending and Delinquencies Drop..22
Farmers Home Administration Guaranteed Lending Grows..................... 24
Legislation Alters Farmers Home Administration’s Programs.................. 26
Life Insurance Company Farm Loan Portfolios Continue to Improve ......28
Long-Term Lender Outlook
Long-Run Future Clouded for Agricultural Lenders .............cccsseseeeseees 30
Special Articles
Do Advance Deficiency Payments Affect Credit Markets? ..................... 31
Have Mergers Improved the Financial Performance of
Farm Credit Banks? c:...<..c0ccetaesrad Iseseee tponc tsa cea:c aNsca s ae 35
Approved by the World Agricultural Out-
look Board. Summary released Tuesday, Appendix Tables and Figures ..............c.c. .. eesssnceceeseeeceeecseneeeeseeseaeacs 41
February 19, 1991. The summary of the next
Agricultural Income and Finance Situation LISt OF TAINS «sais. .cccsesctesectisct ins shee aeso anssts deel ee Rn ea ne 42
and Outlook is scheduled for release on
Thursday, June 13, 1991. Summaries of
Situation and Outlook reports may be accessed
Situation Coordinator
electronically through the USDA CID sys-
Jerome Stam [phone]
tem. For details, call [phone].
The Agricultural Income and Finance Situ- Principal Contributors
ation and Outlook is published four times a John Kitchen (General Economy) [phone]
year. Subscriptions are available from ERS-
Elizabeth Mack (General Economy) [phone]
NASS, Box 1608, Rockville, MD 20849-
Jerome Stam (Lender Overview, Current Lender Loan Portfolios,
1608. Or call, toll free, 1-800-999-6779
(weekdays, 8:30-5:00 ET). Rates: 1 year Life Insurance Companies, Farm Debt) [phone]
$12, 2 years $23, 3 years $33. Add 25 Douglas Duncan (Lender Overview, Commercial Banks) [phone]
percent for subscriptions mailed outside the Merritt Hughes (Farm Credit System) [phone]
United States. Make check payable to ERS-
Steven Koenig (Farmers Home Administration, Long-term Lender Outlook,
NASS. Single copies are available for $8.00
Farmer Mac) [phone]
each.
James Ryan (Farm Debt, Interest Rates) [phone]
Time to renew? Your subscription to Agri- George Wallace (Commercial Banks, Interest Rates, Graphics)
cultural Income and Finance Situation and [phone]
Outlook expires in the month and year shown
Robert Collender (Long-Term Lender Outlook) [phone]
on the top line of your address label. If your
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Toshiro Settles
Summary
Financial institutions serving agricul- assets and equity since 1983 (1.04 and Anumber of institutional and regulatory
ture continued to recover in 1990. Total 11.4 percent by midyear annualized data). changes have offset the underlying im-
farm debt at yearend 1990 (excluding Their capital ratios, at 10.2 percent of provement of the FCS performance in
household debt) is estimated at $133.9 assets, indicate substantial ability to sur- 1990. Net income (the broadest mea-
billion, a drop of 1.3 percent from a year vive any short-term farm financial down- sure of net revenue) declined due to
earlier and a 31-percent decline from the turn. Loan-to-deposit ratios were down lower negative provisions for loan losses,
1983 peak of $192.7 billion. The bulk slightly at midyear to 55.3 percent and repurchase of outstanding FCS debt, and
of the 1990 decline in volume is attrib- still below historical levels and the ra- reductions in gains on the sale of foreclo-
utable to Farmers Home Administration tios desired by management. Commer- sure property. New accounting guide-
(FmHA) activity. Its shrinkage, com- cial banks’ nonreal estate delinquent farm lines issued by the Farm Credit Admin-
bined with small decreases in the hold- loans held at 2.5 percent of portfolios as istration (the FCS regulator) require sev-
ings of life insurance companies and of of June 30, while net chargeoffs were eral System banks to increase their non-
individuals and others, offset increases less than a tenth of a percent. The num- accrual loan balances.
in loans held by the Farm Credit System ber of farm bank failures--18 in 1990--
(FCS) and commercial banks. demonstrates a continued dwindling of: Some FCS institutions remain in a weak
problem farm banks. In fact, farm banks financial condition. While the last of
The delinquent portion of loan portfo- as a group are now among the healthiest the Jackson Federal Land Bank receiv-
lios was steady for the most part at mid- of commercial banks. ership assets and liabilities were dis-
1990. The FCS and life insurance com- posed of during the year, there are now
panies experienced slight increases while Direct FmHA lending during fiscal 1990 four other Farm Credit Banks (St. Paul,
banks remained at yearend 1989 levels was $200 million below last fiscal year, Louisville, Omaha, and Spokane) that
and FmHA delinquency ratios were down. dropping below $1 billion for the first have received assistance under the Farm
Loan chargeoffs were down for farm year since 1972. Obligations are ex- Credit Act of 1987. In total, $1.26 bil-
banks. Lenders in all categories contin- pected to continue trending downward lion of the $4-billion line of credit au-
ued to divest themselves of previously because of cuts imposed by the Omni- thorized by the act has been utilized.
acquired property. bus Budget Reconciliation Act of 1990.
Total outstanding direct loan volume The outlook for the Farmer Mac second-
Farmers remain cautious about taking dropped below $20 billion for the first ary market has improved. During the
on new debt. However, stable land val- time in a decade. Guaranteed lending past year two firms have been certified
ues and strong farm income may gener- has not offset the decline in direct lend- by Farmer Mac as poolers of loans, and
ate a slight increase in farm debt in the ing, but was up somewhat this past year. another has submitted an application.
coming year. Lending capacity is more FmHA is continuing its effort to facili- Both poolers are working toward offer-
than adequate to handle the demand, tate the shift from direct to guaranteed ing securities backed by rural housing
particularly at commercial banks. loans. and farm real estate mortgages. The
1990 farm bill gives Farmer Mac au-
Agricultural interest rates declined in Through aggressive loan restructuring thority to pool FmHA guaranteed loans
1990, and many analysts are expecting and increased foreclosures, FmHA is (known as Farmer Mac II) and it has
further declines of 50 to 75 basis points finally reducing its stock of delinquent moved quickly to begin pooling guaran-
in 1991. Interest rates on nonreal estate loans. At mid-1990, delinquencies stood teed loans by summer.
farm loans averaged 11.50 percent for at $6.7 billion, down $2 billion from last
commercial banks and 11.16 percent for year. Net chargeoffs by the agency con- A number of factors have hindered the
the FCS in 1990. Average real estate tinue to be high. startup of Farmer Mac, including regu-
loan rates in the same period averaged latory capital requirements for banks,
11.71 percent at commercial banks and The financial condition of FCS institu- the difficulty of standardizing loans given
10.56 percent for the FCS. All agricul- tions continued to improve gradually
the diversity of the agriculture sector,
tural lenders indicate they would like to during 1990. Loan volume rose slightly
the challenge of structuring securities
make more new loans, primarily to farm- to $51.1 billion at the end of the third
that are price competitive with other
ers with highly liquid assets. quarter as credit quality improved. Net
security investments, low loan-to-de-
interest income and other income in-
posit ratios at commercial banks, and
Despite the much-publicized problems creased while some expenses decreased
the return of a more upward-sloping
of large urban commercial banks, farm relative to last year.
yield curve.
banks continued their recovery in 1990,
achieving the highest rates of return on
General Economy
Recession and Persian Gulf Dominate Economic Scene
The weak general economy is a mixed blessing for agriculture.
After nearly 8 years of expansion, the to 6.1 percent. A significant decline in creased from below 8.5 percent in July
U.S. economy entered a recession in the manufacturing activity led to a 3-per- to nearly 8.9 percent in September.
second half of 1990. While the reces- cent dropoff in industrial production and
sion followed several years of relatively a fall in capacity utilization from 84 The key role for oil prices will likely
tight monetary policy, credit constraints percent to 80 percent. continue in 1991. The timely resolution
and the negative effects of the Persian of the Persian Gulf situation will likely
Gulf situation also contributed signifi- Interest Rates Behaved Differently generate low oil prices and reduced infla-
cantly to the weakness in the general tion and long-term interest rates. With an
The interest rate behavior that typically
economy. With timely resolution of the outlook for lower inflation and a contin-
Gulf situation, most forecasters look for precedes a recession was largely absent ued weak economy in the first half of
prior to the current downturn. Usually,
low oil prices and a relatively mild re- 1991, the Federal Reserve will likely
the yield curve is inverted before reces-
cession, with an economic rebound in allow short-term interest rates to fall fur-
mid-1991. sions as a peaking economy and restric- ther. The decline in interest rates should
tive monetary policy drive short-term
help promote a rebound in consumption
interestrates above long-term rates. While
While significant costs are associated and investment spending later in the year.
the yield curve flattened during 1988
with recession, likely benefits include
when Federal Reserve policy was di-
reduced inflation and lower interest rates. A Mild Recession?
rected at fighting inflation, more re-
In addition, the current low exchange
cently the yield curve has been posi- While the risks of a deeper recession are
value of the dollar should promote U.S.
tively sloped as the Fed pushed short- real, most forecasters believe the reces-
exports and reduce the severity of the
term interest rates down. sion will be mild by historical standards.
downturn. The combined low oil prices,
The danger still exists for the economy
inflation, interest rates, and dollar ex-
Financial market restrictions in the cur- to experience significant negative pres-
change value should help providea r el-
rent downturn appeared to occur more sures from financial instability, high con-
atively healthy macroeconomic environ-
because of credit restrictions than be- sumer and corporate debt levels, or un-
ment for the agricultural sector.
cause of high short-term interest rates. certainty about oil prices and the Persian
Banks and other lending institutions be- Gulf situation. But the consensus of a
Recession Evidence Accumulates
came more reluctant to make loans for recent survey of private sector econo-
The preliminary estimate for real Gross several reasons, including weak real es- mists suggests that real GNP will fall by
National Product (GNP) growth in the tate markets, higher loan defaults, in- just over 1 percent from a peak in the
fourth quarter of 1990 shows that the creased regulation, and restrictive lend- late summer of 1990 to a trough in the
economy contracted at an annual rate of ing requirements. Banks have shifted a middle of 1991. This expected decline
2.1 percent during that period. Extreme greater proportion of their assets into compares favorably with an average de-
weakness at the end of the year pulled Government securities, making a lower cline of over 3 percent for the other three
real growth for 1990 down to 0.9 per- share available to private borrowers. recessions of the 1970’s and 1980’s.
cent, from 2.5 percent in 1989 and 4.5
percent in 1988. Persian Gulf and Oil Prices are Key Implications for Agriculture
Factors
Slow income growth in the macroeco-
Weakness in the economy during the
The price of oil was a key factor affect- nomy will lead to reduced demand for
fourth quarter of 1990 was spread across
ing inflation, interest rates, and the gen- some agricultural products. However,
various sectors. Interest- and credit-sen-
eral economic outlook in the second half if crude oil prices, inflation, and interest
sitive spending was particularly hard
of 1990. Crude oil prices surged from rates remain low, agricultural produc-
hit. Real consumption spending fell 3.1
about $17 per barrel in July to more than tion expenses will be kept down. Also,
percent at an annual rate, and invest-
$35 per barrel at one point in November. with a weak economy, lower interest
ment dropped 18 percent at an annual
Inflation, measured as the change in the rates, and declining inflation pressures,
rate. Labor markets also felt the impact
Consumer Price Index (CPI) over the
the exchange value of the dollar will
of recession as civilian employment fell
previous year, jumped from 4.8 percent likely remain low, maintaining the com-
by 663,000 jobs between June and De-
in July to 6.3 percent in October. Yields petitiveness of U.S. agricultural exports.
cember. Over the same period, the ci-
on long-term Government bonds in-
vilian unemployment rate rose from 5.3
The price of crude oil surged in August 1990, weakening the economy and fueling inflationary pressures.
Increased uncertainty and higher inflationary expectations drove long-term interest rates up. By the end
of the year, the Federal Reserve was pushing short-term interest rates down as falling production and rising
unemployment revealed weakness in the economy.
Figure 1 Figure 2
West Texas Intermediate Crude Oll Price Inflation--Consumer Price Index
$ per barrel Percent change over previous year
40 6.5
35 6
30
5.5
25
5
20:
4.5
15 4
10 3.5
3/88 9/88 3/89 9/89 3/90 9/90 3/88 9/88 3/89 9/89 3/90 9/90
Figure 3 Figure 4
Long-Term Treasury Bond Yield Treasury Bill Rate
Percent Percent
9.4 9
9.2 8.5
9
8
8.8
7.5
8.6
7
8.4
6.5
8.2
al. 6
7.8 5.5
3/88 9/88 3/89 9/89 3/90 9/90 3/88 9/88 3/89 9/89 3/90 9/90
Figure 5 Figure 6
Industrial Production Clvillan Unemployment Rate
Percent change over previous year Percent
8 6.2
6
6
5.8
4
5.6
2
5.4
0
5.2
(2) 5
(4) 4.8
3/88 69/88 = 3/89 «9/89 3/90 9/90 3/88 9/88 +3=3/89 += 9/89 += 3/90 = 9/90
Lender Overview
Improvement Continues in 1990
Farm lenders’ portfolios benefit from continued strength in farm income. Most farm
income measures attained record levels in 1990, benefiting both farmers and lenders.
The financial condition of agricultural operation loan funds of nearly $200 mil- Lender Health Improves
lenders continued to improve in 1990, lion available at fiscal 1990 yearend.
The financial health of the FCS and
and further gains are expected in 1991. Total FmHA direct obligations fell
commercial agricultural banks contin-
Each of the four major institutional farm below $1 billion for the first time since
ues to improve. FCS net income
lender categories--commercial banks, 1972. Among life insurance companies
through the third quarter of 1990 was
Farm Credit System (FCS), Farmers still actively pursuing agricultural in-
$455 million. While in general, FCS
Home Administration (FmHA), and life vestments, total lending activity de-
performance was stable relative to last
insurance companies--face unique chal- clined slightly (1.2 percent) during the
year, core earnings for the FCS contin-
lenges but are in stronger positions than year.
ued to improve in 1990. For the second
during the mid-1980’s. Most borrowers
year in a row, more net income was
remain cautious in taking on new debt Despite increased lending activity of some
derived from interest income and less
for expansion, and paydown of debt con- insurance companies, outstanding loan
from the reversal of loan reserves. Ag-
tinued in 1990. With moderate loan de- ‘volume declined 2.1 percent in 1990
ricultural banks reported higher average
mand and improving loan portfolios, and by year’s end was 28.4 percent
retums to equity and assets in 1990, and
agricultural lenders are focusing com- below the 1981 peak. Total loan vol-
lower net loan chargeoffs. These perfor-
petitive efforts on increasing market ume of commercial banks and the FCS
mance measures are approaching values
share. increased in 1990. Commercial banks
common before farm financial problems
posted volume gains of $1.9 billion or
emerged in the early 1980’s.
Lenders Strengthen Position 4.4 percent for calendar 1990, mostly
from nonreal estate lending. The FCS
The position of agricultural lenders in _ FmHA continues to work aggressively
reported loans outstanding of $51.1 bil-
1990 reflected the overall improvement through its backlog of delinquent direct
lion on September 30, 1990, an increase
in the financial position of farmers. Ex- -loans. Delinquent payments at mid-1990
of 1 percent from a year earlier. FmHA
cept for the FmHA, all major institu- were down $2 billion from the previous
lending continued its post-1985 decline
tional lender groups continue to experi- year to $6.7 billion. Restructuring re-
with a drop of 21.6 percent in total farm
ence lower delinquencies, fewer fore- quirements of the Agricultural Credit Act
loans outstanding in 1990, $4 billion
closures, declining net loan chargeoffs, of 1987 have generated cumulative loan
below 1989.
and far less loan restructuring than in the writedowns and writeoffs of $2.6 billion
mid-1980’s. Although improvement con- through October 1990. The long process
Farm Interest Rates Decline
tinues, the pace of working down delin- of resolving this backlog of debt, most of
quencies has slowed as financial stress Interest rates on farm loans declined it extended under emergency programs,
has declined. slightly in 1990 among the major agri- will continue to be costly.
cultural lenders, with an overall de-
Demand for Credit Moderate crease of some 50-60 basis points. Con- Lenders report intense competition for
siderable differences in local agricul- high-quality farm loan assets. Loan-to-
All lender categories report that agricul-
tural credit market competition and the deposit ratios inched up for agricultural
tural credit demand was not particularly
wide variety of available loan products, banks in the year ending June 30, 1990,
strong in 1990, while the capacity to
however, resulted in wide variation in but surveys of bankers still indicate the
lend remained high. Agricultural com-
interest rates for farm loans. Spreads ratios are below desired levels. Life
mercial banks continue to have ample
between different classes of real estate insurance companies continue to exhibit
lending capacity as indicated by low
and nonreal estate loan types at com- considerable variation in loan policies
loan-to-deposit ratios. FCS long-term
mercial banks were as much as 3 percent toward agriculture; some are aggres-
real estate loans outstanding decreased
in some districts. Intense competition sively seeking new business while oth-
2.7 percent during the year ending Sep-
resulted in commercial banks and the ers are not.
tember 30, 1990, reflecting decreased
FCS pricing loans to preferred customers
demand for mortgage credit due to
at 50 basis points below the banks’ min-
borrowers’ improved financial posi-
imum stated interest rates.
tions. FmHA had undisbursed direct
Nn
Lender Overview--continued
Guarded Optimism Overall for 1991
Farm lenders will deal with a U.S. farm economy entering 1991 with reason to be
cautiously optimistic. Farmer Mac inches forward.
Lenders overall will be dealing with a lending industry; (4) costs and risks as- The OCC guidelines indicate that only
farm sector entering 1991 apparently sociated with environmental concerns; the value of subordinated participation
stronger than at any time since the late (5) changes in Government farm pro- interests (likely to be held in the form of
1970’s. This is largely the result of cau- grams; (6) health of the general econ- securities) in a loan pool will be counted
tious investment behavior, effective omy; and (7) U.S. farm export levels. against a bank’s legal lending limit--not
cost control, increased cash financing, the full value of the loans sold. This
and reduction in outstanding debt. Farmer Mac Still Awaiting should encourage participation, espe-
Farmers’ vulnerability to short-term in- Operation cially among smaller banks. Origina-
come fluctuations is reduced because of tors must retain loss liability on the first
Three years after authorization by Con-
gradually increasing asset values and 10 percent of the mortgage through a
gress, the Federal Agricultural Mort-
lower debt loads. participating interest, or hold an equiv-
gage Corporation (Farmer Mac) contin-
alent cash reserve.
ues to await formal operation of its sec-
The outlook is for limited growth in an
ondary market for agricultural and rural
otherwise healthy farm economy in 1991. OCC also ruled that loan sales into a
housing mortgages. Operation delays
While it appears that farmers will not Farmer Mac pool will be counted as
can be attributed to a number of factors
make great financial strides in 1991, loans sold with recourse, meaning that
influencing the market’s competitive-
most will be able to avoid major set- reserve capital must be maintained on
ness.
backs. Factors now coming into play the entire amount of the loan sold and
indicate that U.S. farmers are likely to not just the 10 percent retained. The
One important factor has been the trend
see slightly lower net incomes in 1991. ruling thus lowers the profit potential
toward higher long-term interest rates
Reduced Government payments and from Farmer Mac loan sales.
relative to short-term rates in 1990.
higher production expenses will offset
This has made long-term fixed rate
the rise in cash receipts, leading to lower In September, Farmer Mac certified its
mortgages (those likely to be
net cash and net farm income. Farm first loan pooling facility. Manufac-
securitized in the Farmer Mac market)
borrowing is not expected to increase tures Hanover Securities Corporation
less competitive relative to variable rate
significantly as a result of the drop in announced intentions to pool rural
mortgages that are financed by short-
income. During the last half of the 1980’s, housing and agricultural mortgages. In
term credit. Another factor has been the
farm debt declined by almost $60 bil- January of this year, Goldman Sachs
continued high degree of liquidity
lion. Farmers and their lenders learned Mortgage Company was also certified
among agricultural banks and the strong
lessons from the financial stress of the as a pooler, and Farmer Mac was con-
competition for high-quality farm mort-
mid-1980’s and are reluctant to respond sidering an application of a third un-
gages in general.
to the current and forecast situation with identified firm.
renewed debt expansion.
Developments with implications for
In November, the Food, Agriculture,
Farmer Mac’s eventual startup did
All major institutional farm lenders face Conservation, and Trade Act of 1990
occur in the past year. In June, the Of-
a number of evolving issues. Because gave Farmer Mac the authority to oper-
fice of the Comptroller of the Currency
of their differing institutional setting, ate a secondary market for FmHA guar-
(OCC) issued guidelines governing com-
farm lenders will take different ap- anteed farm loans (known as Farmer
mercial banks’ participation in the new
proaches to the challenges of 1991. The Mac II). This new authority should boost
market. The guidelines are an impor-
issues that will shape future lending prac- Farmer Mac’s visibility and give it
tant step because banks are a primary
tices include: (1) profitability of farm bor- needed experience. The new market is
source of mortgages and have been side-
rowers; (2) degree of success of the expected to be operational by summer.
lined by uncertainty over the OCC rules.
Farmer Mac secondary mortgage loan Authority to create a secondary market
process; (3) improving the financial re- for FmHA guaranteed loans came from
porting standards of the agricultural the Agricultural Credit Act of 1987.
Lender Overview--continued
Farm Credit Access Ample for 1991
Total farm debt should stabilize in 1991. Demand for quality farm loans is moderate.
Slightly lower net farm incomes in value increases, but the rate of increase regain market share. Life insurance
1991, coupled with slower rates of farm now has fallen below the rate of infla- companies vary in their lending poli-
asset growth, mean no large increases in tion. During recent years, the overall cies, ranging from inactivity to aggres-
farm borrowing are forecast for next strengthening of land values has les- sive lending; total life insurance com-
year. U.S. farm asset values (excluding sened lenders’ concern about the ero- pany lending is expected to increase
operator households) rose $24 billion in sion of collateral values. In addition, about 5 percent in 1991.
1990, an increase of about 3 percent. there now may be a heightened interest
Total assets are expected to reach $825 in real estate as an investment because The availability of direct FmHA loans
to $835 billion in 1991, with the rate of of its somewhat higher returns in rela- to family-sized farmers unable to obtain
growth slowing to less than 2 percent. tion to other asset classes. Farm real credit elsewhere should be down some-
These modest changes suggest a stabi- estate debt thus should increase slightly what from fiscal 1990. The 1990 Bud-
lizing farm economy. The real value of in 1991. get Reconciliation Act sets Operating
farm assets is projected to decline in Loan authority at $936 million and
1990/91, as the general inflation rate is Demand for nonreal estate loans should Farm Ownership authority at $83 mil-
expected to exceed the growth in asset remain moderately high in 1991. Farm lion; both are $3 million higher than in
values. capital expenditures fell nearly 60 per- 1990. However, the act also calls for
cent during 1980-86 but increased dur- $482 million of this lending authority to
Farm Debt Stabilizing ing the 1987-90 span. The demand for be transferred from these programs to
unit sales of machinery is currently pro- their corresponding guarantee pro-
Total farm debt should increase slightly
jected for 1991 to be similar to the 1990 grams. The amount transferred is to be
in 1991; the increase is expected to end
level. The observable positive factors reduced by a formula if the graduation
a 7-year trend of debt retirement. A
for 1991 are interest rates below or near of direct borrowers to guarantee pro-
drop in FmHA debt should be more than
1990 yearend levels, increased cash grams did not reach a threshold value in
offset by increased loan volumes of
marketings, and a farm sector debt/asset the previous fiscal year.
other farm lenders. Total loan volume
ratio remaining near 1989/90 levels.
for both the FCS and commercial banks
But these positive factors must be bal- FmHA’s authority to guarantee loans
increased during the last year, while life
anced against an outlook for declining made by commercial and cooperative
insurance companies and the FmHA
net farm income, reduced planted acre- lenders should be ample in fiscal 1991.
continued to post declines. Commer-
age, and uncertainty regarding the im- Approximately $1.3 billion in loan
cial banks experienced a 4.4-percent in-
pact of the 1990 farm bill. Nonreal es- guarantees was issued in 1990, far less
crease in real estate lending in 1990,
tate debt is projected to increase by than the minimum $3.2 billion in lend-
marking the ninth consecutive year of
more than $150 million in 1991 com- ing authority available for 1991. De-
gains for this category. Some of this
pared with a decrease of $1,687 million mand for loan guarantees in 1991 is not
increase was due to more stringent loan
in 1990. expected to change greatly from 1990.
collateral requirements implemented
during the farm financial crisis of the
Credit Access is Ample The outlook for 1991 indicates that
mid-1980’s.
competition for high-quality farm loans
Creditworthy farmers should have
will continue to remain keen. The com-
Activity in the land market should cre- ample access to operating loans in 1991,
petition should serve to keep interest
ate moderate demand for mortgage mostly from commercial banks and the
rates down. The overall mood is cau-
loans. U.S. farmland values increased 4 FCS, the largest suppliers. Banks’ low
tiously optimistic. Producers are pru-
percent in 1989, rose an estimated 3 to loan-to-deposit ratios provide liquidity
dent in taking on new debt and lenders
5 percent in 1990, and are expected to to meet increased credit needs. The
are carefully scrutinizing the creditwor-
add another 2 to 4 percent in 1991. This FCS is offering farm customers favor-
thiness of borrowers.
will make 5 straight years of farmland able credit arrangements in an effort to