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FSA Guaranteed Loans need to keep up with ag costs

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Several members of the financial sector gave their perspective on current credit conditions, as well as how credit programs impact credit availability for farmers, ranchers, and forest owners in a hearing with the House Agriculture Committee’s Subcommittee on Commodity Exchanges, Energy, and Credit Tuesday. The hearing was held to evaluate the effectiveness of farm bill authorized credit programs administered by the Farm Service Agency (FSA).

Nathan Franzen, president of agri-business at First Dakota National Bank in Yankton, South Dakota, testified on behalf of the American Bankers Association. First Dakota National Bank is a family-owned and locally-controlled community bank with $890 million in agricultural lending.

Franzen discussed the successes of the 2014 Farm Bill, including its protection of crop insurance, the Conservation Reserve Program (CRP), and the removal of term limits on FSA Guaranteed Loan Programs. However, he expressed concerns about the changing agricultural landscape and identified several essential reforms for inclusion in the upcoming Farm Bill to help the industry overcome the challenges ahead.

“The most important change that should be made to the next Farm Bill is an increase to the current loan limit on FSA Guaranteed Loans,” Franzen said, referring to the current $1.399 million limit. “The formula for indexing the programs has not kept up with the increasing costs of agriculture. It is much more costly for a young, beginning, or small farmer to get into agriculture, and the guaranteed loan programs need to reflect that reality.”

Scott Marlow,North Carolina farm advocate and Executive Director of the Rural Advancement Foundation International (RAFI) echoed Franzen as he underscored in his testimony the importance of USDA Farm Service Agency (FSA) loan programs, helping farmers who aren’t well served by private lenders to cover necessary operating and ownership costs.

“Our calls are up,” said Marlow, “Especially from commodity farmers who have been turned down for their operating loans. The severity and sense of frustration of those calls have increased.”

Marlow stressed that three things must be in place for these FSA programs to be as effective and efficient as possible:

  1. There must be sufficient funding in the programs to meet the current and projected demand.
  2. There must be enough FSA staff to administer these programs at the county level.
  3. FSA staff must be properly trained so that they can administer the programs well.

“A farm does not wait on politics,” Marlow said. “The seed does not wait, and the weeds and the bugs do not wait. When a loan is delayed, the family… is forced to find funding through alternate means like high-interest credit cards that will only exacerbate their financial situation.”

In his testimony, Steve Handke, president and CEO of the Union State Bank of Everest, Kansas said that implementing more robust and better-financed USDA guaranteed lending programs through the 2018 farm bill will help avoid a farm credit crunch and prevent an exodus of producers from the agricultural sector.

“Congress has the power to help avoid a farm credit crisis,” Handke said. “We need to be thinking about USDA guaranteed lending programs as a major tool, along with commodity programs and crop insurance, to keep thousands of farmers in business during what could be severely stressful times ahead.”

“Due to the downturn in the farm economy over the last four years, access to adequate credit is more essential now than ever for America’s farmers and ranchers. In order to best enable our producers to continue supplying a safe, affordable, and abundant food and fiber supply for America and the rest of the world, we must ensure that the agricultural credit policies currently in place are working and providing the liquidity producers need to meet day-to-day operating expenses. Along with a strong farm safety net—including crop insurance—credit availability is a tool we cannot afford to lose. As we approach farm bill deliberations, we need to prioritize access to credit, and I look forward to a great discussion on the program changes necessary to keep pace with the needs of producers,” Subcommittee Chairman Rep. Austin Scott (R-GA) said.

“Given the downturn in the farm economy and the erosion of cash reserves, securing additional credit has become a necessity for many of our producers, particularly our younger producers who are just getting their start. Access to credit, backed by a strong farm safety net, is vital to keeping our farmers and ranchers in business during times of economic uncertainty. As we move forward with our farm bill discussions, we will continue to advocate for common sense solutions that address the credit and risk management needs of rural America,” House Agriculture Committee Chairman K. Michael Conaway said.

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