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Agriculture
AN EIGHTH DISTRICT PERSPECTIVE
Spring 1984

The Farm Credit System: The Consequences
Of Changing Its Agency Status
The Farm Credit System has provided credit sub­
sidies to farmers and farm cooperatives for more than
50 years. Even though institutions within this System
are borrower-owned private cooperatives, the System’s
status as a federal agency enables it to extend credit to
farmers and farm business cooperatives at reduced
rates of interest. Since 1981, however, an Office of
Management and Budget (OMB) proposal to remove
agency status from the System has been under review.
This article examines the consequences of changing
the System’s agency status.

and intermediate-term operating credit at a 15.1 per­
cent rate of interest. At the same time, long-term real
estate credit was available from the System’s Federal
Land Banks at an 11.4 percent rate. The highest rates
charged by institutions in the Farm Credit System for
production and real estate debt since 1976 have been
15.8 and 12.4 percent, respectively.

The Farm Credit System and
How It Operates

The interest rate spreads depicted in the plot have
contributed to substantial changes in the shares of
farm debt held by different lending institutions. In
1976, for example, when Farm Credit System rates
were comparable to commercial bank rates, the two
groups held about 80 percent of total farm debt and
split this amount in nearly equal shares. (See table on
next page.) Between 1978 and 1982, however, Farm
Credit System debt increased by about 80 percent
while farm debt at commercial banks increased by
slightly more than 20 percent. These sharply different
rates of change over the four-year period in which in­
terest rate spreads were largest reduced the commer­
cial bank share of total farm debt from about 40 per­
cent to about 29 percent. During the same period, the
share of total farm debt held by the Farm Credit
System, the Farmer’s Home Administration and the
Commodity Credit Corporation increased to 64 per­
cent.

Interest Subsidies and Their
Effects on Lending

The Farm Credit System raises loanable funds by is­
suing securities of various maturities and denomina­
tions. Next to the U.S. Treasury, it is the largest
federal borrower. Although securities issued by the
System are not guaranteed by the federal government,
a perception that the government would not let the
System fail tends to reduce the risk associated with
holding the System’s securities.
This lower perceived risk associated with Farm
Credit System securities reduces the interest rate at
which the System can raise loanable funds. As
borrower-owned cooperatives, lending institutions
within the System pass on this cost saving to their
farm customers in the form of lower interest rates on
their real estate and production loans.
This ability to extend credit to farmers at lower in­
terest rates is illustrated by the plotted
data in the chart on the next page that
show substantial spreads between the
average bank rate on business loans and
the rates charged to farmers for their
THE
FEDERAL
operating and real estate loans. For exam­
RESERNE
ple, when business loan rates peaked at 21
RANK of
percent in the third quarter of 1981, the
ST. LOLLS
Production Credit Associations of the
Farm Credit System were extending short


Loss of Agency Status: Its
Effects on Rates and
Credit Practices
Loss of agency status would likely
eliminate these credit subsidies for several
reasons. First, to the extent the System’s
securities no longer had the image of
federal backing, it would have to pay

SPRING 1984

FEDERAL RESERVE BANK OF ST. LOUIS

higher rates to raise loanable funds. Second, proposed
changes in rules that allow commercial banks to use
System securities as collateral for borrowings from the
Federal Reserve would cause a reduction in demand for
System issues. Demand would be reduced further by
rules that would limit the percentage of commercial
bank portfolios that could be held in Farm Credit
System securities. In each case, the proposed
operating rules for the System would reduce its com­
petitive advantage in credit markets and raise the
costs of real estate and short-term operating credit to
farmers.
The interest rate subsidies of the Farm Credit
System also have promoted the trend toward fewer,

but larger, farms. By reducing the cost of capital
relative to labor and other variable inputs, the
System’s lending policies have encouraged farmers to
increase the size of their capital stock. Since efficien­
cies from these capital additions usually are realized on
larger farms, cheaper credit also has been an incentive
to increase indebtedness in efforts to expand the size of
farming operations. These credit practices may be
partly responsible for the recent increase in farm
bankruptcies and the continuing decline in small farm
operations.

—Michael T. Belongia

Farm Debt Outstanding (millions of dollars)

1976
1977
1978
1979
1980
1981
1982
1983

Total
71,734
84,288
97,928
114,957
131,141
146,892
161,938
167,794

Insured
Commercial
Banks
28,585
32,730
35,406
38,516
39,665
41,129
43,960
47,205

Life
Insurance
Companies
7,082
8,251
9,862
11,594
12,717
13,049
12,912
12,678

Cooperative
Farm Credit
System
29,936
34,311
38,337
45,283
54,483
63,478
68,465
68,292

Farmers’
Home
Administration
5,655
6,562
9,621
14,383
19,324
23,792
24,896
25,229

Source: Federal Reserve Board
Note: Individual columns may not add due to rounding.

A Comparison of Interest Rates on Farm and Non-farm Loans

1977
2



78

79

80

81

82

83

1984

Commodity
Credit
Corporation
478
2,434
4,703
5,182
4,952
5,445
11,706
14,391

FEDERAL RESERVE BANK OF ST. LOUIS

SPRING 1984

EIGHTH DISTRICT AGRICULTURAL DATA

Percent Change
Prices and Costs1
C O N S U M E R P R IC E IN D E X (% c h a n g e )
N o n fo o d
Food
P R O D U C T IO N C O S T S F O R F A R M E R S (% c h a n g e )
A ll in p u ts
F e rtiliz e r
A g r ic u ltu r a l c h e m ic a ls
F u e ls a n d e n e rg y

D e c.
1 9 83

0.2 %
0.5

Jan.
1984

0 .4 %
2.4

Feb.
1984

0 .3 %
0.9

A v e ra g e
fo r 1 9 8 3

0 .3 %
0.2

Y e a r -T o -D a te 2
1984

S a m e P e rio d
Y ear Ago

0 .7 %
3.3

4 .5 %
4.7

6.1
1.2
0.0
-1 .0

-4 .3
0.0
0.0
0.5

0.3
0.0
0.0
0.7

0.8
-0 .2
0.3
-0 .3

-4 .0
0.0
0.0
1.2

4.1
-2 .4
4.2
0.7

4.1
5.9
2.3

3.1
4.8
0.8

-1 .5
-1 .1
-2 .3

0.9
0.3
1.6

1.6
3.6
- 1.5

7.4
1.6
15.0

FEEDER CATTLE
W h o le s a le p ric e - K a n s a s C ity ($ /cw t.)

$63.65

$65.06

$66.19

$ 63.72

4.0

- 1.7

F E E D E R PIG S
W h o le s a le p ric e - S o. M is s o u ri ($/head)

$27.65

$33.61

$43.49

$ 33.96

57.3

-2 1 .5

P R IC E S R E C E IV E D BY F A R M E R S (% c h a n g e )
A ll p ro d u c ts
L iv e s to c k
C ro p s

B R O IL E R S
W h o le s a le p ric e -1 2 -c ity (c/lb .)

57.13c

62.10C

6 1.22c

5 0 .3 9 c

7.2

27.6

TURKEYS
W h o le s a le p ric e - N e w Y o rk ,
8-16 lb. y o u n g h e n s (c/lb .)

75.22c

73.46C

64.50C

60.48C

-1 4 .3

17.5

CORN
W h o le s a le p ric e - S t. L o u is ($/bu.)

$ 3.45

$ 3.41

$ 3.31

$ 3.27

-4 .1

18.6

SOYBEANS
W h o le s a le p ric e - N .C . I llin o is ($/bu.)

$ 7.93

$ 8.03

$ 7.09

$ 6.86

- 10.6

23.1

W HEAT
W h o le s a le p ric e - N o. 1, h a rd w in te r K a n s a s C ity ($/bu.)

$ 3.85

$ 3.81

$ 3.71

$ 3.95

-3 .6

-9 .1

L O N G -G R A IN R IC E
W h o le s a le p ric e - A rk a n s a s ($ /c w t.)

$19.00

$18.98

$18.60

$ 18.40

-2 .1

6.3

-4 .6

13.8

CO TTO N
W h o le s a le p ric e - a ll m a rk e ts (c/lb .)

67.30c

63.90c

64.20C

62.30C

Percent Change
U .S .

Exports

C o rn (m il. bu.)
S o y b e a n s (m il. bu.)
W h e a t (m il. bu.)
R ic e (ro u g h e q u iv a le n t, m il. c w t)
C o tto n (th o u , b a le s )

O c t.

Nov.

D ec.

A v e ra g e

Y e a r-T o -D a te

1 9 83

1983

1983

fo r 1 9 8 2

1983

155.6
67.6
123.9
6.5
274.0

197.2
69.2
107.3
5.4
462.0

176.2
74.5
131.5
5.0
663.0

161.2
78.0
130.1
6.3
532.7

0.9
-1 7 .3
46.2
20.8
67.8

$5,263
1,091

$5,103
932

$5,362
1,048

$6,187
1,281

-2 9 .0
-3 2 .3

5,647
888

5,600
857

6,256

5,848
907

6.7
11.3

Receipts3
C R O P S (m illio n s o f d o lla rs )
U n ite d S ta te s
D is t r ic t (s e v e n -s ta te to ta l)
L IV E S T O C K ( m illio n s o f d o lla rs )
U n ite d S ta te s
D is t r ic t (s e v e n -s ta te to ta l)




1,011

3

EIGHTH DISTRICT AGRICULTURAL DATA

Marketing Year
Crop Production4

1980/81

1981/82

1982/83

C O R N (O c to b e r 1 - S e p te m b e r 30)
A c re s p la n te d (m il. a c re s )
P ro d u c tio n (b il. bu.)
Y ie ld (b u . p e r a cre )
E n d in g s to c k s (b il. bu.)

84.0
6,644.8
91.0
2,774.2

84.2
8,201.6
109.9
3,904.1

81.8
8,359.4
114.5
4,962.3

S O Y B E A N S (S e p te m b e r 1 - A u g u s t 31)
A c re s p la n te d (m il. a c re s )
P r o d u c tio n (b il. bu.)
Y ie ld (bu. p e r a c re )
E n d in g s to c k s (b il. bu.)

70.0
1,792.1
26.4
679.4

67.8
2,000.2
30.1
652.2

71.5
2,229.5
31.9
857.0

W H E A T (J u n e 1 - M a y 31)
A c re s p la n te d (m il. a c re s )
P ro d u c tio n (b il. bu.)
Y ie ld (bu. p e r a cre )
E n d in g s to c k s (b il. b u.)

80.6
2,374.3
33.4
988.8

88.9
2,798.7
34.5
1,163.9

87.4
2,812.3
35.6
1,540.7

R IC E (A u g u s t 1 - J u ly 31)
A c re s p la n te d (m il. a c re s )
P ro d u c tio n (m il. c w t.)
Y ie ld (c w t. p e r a c re )
E n d in g s to c k s (m il. c w t.)

3.4
146.2
44.1
16.5

3.8
182.7
48.2
48.9

3.3
153.6
47.1
66.6

14.5
11.1
0.8
2.7

14.3
15.6
1.1
6.6

11.3
12.0
1.2
7.9

C O T T O N (A u g u s t 1 - J u ly 31)
A c re s p la n te d (m il. a c re s )
P r o d u c tio n (m il. b a le s )
Y ie ld (n e t b a le s p e r a c re )
E n d in g s to c k s (m il. b a le s )

1 The consumer price index and its components are seasonally adjusted. All other data are not seasonally adjusted.
2 Percent change from December 1983, based on the most recent month available.

3 Data for receipts are seasonally adjusted.
4 Annual data for crops are based on each crop’s marketing year. SOURCE: Crop Production, Statistical Reporting Service,
Crop Reporting Board, USDA.




Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102