USDA Funds For Farm Loans Are Running Out
Most farmers are familiar with their local USDA Farm Service Agency (FSA) office as the place where they sign up for commodity programs like Agriculture Risk Coverage and as the agency that makes payments under the CRP.
But FSA has another role that is suddenly in demand with low commodity prices. It guarantees loans, both for farm ownership and for annual operating expenses when a borrower no longer meets a bank’s lending standards.
FSA will cover up to 95% of potential losses from such loans. If a bank just can’t continue financing, farmers can apply for direct loans made by FSA. Both programs for operating costs are so popular this year that USDA officials and farm and lending groups expect FSA to run out of money for them long before the federal fiscal year ends on September 30.
“There are farmers walking into FSA credit offices who haven’t been there in years,” says Ed Elfmann, a lobbyist with the American Bankers Association (ABA) in Washington, D.C.
Elfmann says appropriations committees have agreed to raise spending on FSA loan programs at nearly the levels that both the USDA and banking organizations have requested. The Agricultural Appropriations Bill being considered by Congress provides $1.4 billion for operating loan guarantees and nearly $1.5 billion for direct operating loans. But that’s for fiscal year 2017, which starts October 1.
Jim Radintz, deputy administrator for farm loan programs at FSA, concurs that funds are running short for the current 2016 fiscal year.
“Quite frankly, we’re pushing what we’re authorized by Congress to do,” he told Agriculture.com recently.
Bankers are also using more loan guarantees backed by USDA’s FSA. Demand for guaranteed operating loans is up 22% over last year, and guaranteed real estate loans are up 27%, says Radintz.
“There are some nervous lenders out there, and they are looking to use the guaranteed program to continue with customers getting to the edge of what they would allow,” Radintz says.
All FSA loans to farmers and ranchers, both direct and guaranteed, make up about 5% of the total agricultural credit market, serving about 110,000 farmers and ranchers who otherwise would have difficulty getting financing. “To those 110,000 folks, what we do is critical,” he says.
Ferd Hoefner of the National Sustainable Agriculture Coalition is also concerned about the potential shortfall this year, which could reach $350 million for guaranteed operating loans and $300 million for direct loans made for operating expenses. According to Radintz, the shortfall is for operating loans, not for long-term farm ownership loans.
Hoefner says USDA officials “expect to be out of direct operating loans any day now and guaranteed (loan funds) by the end of June, if not earlier.”
Hoefner’s group has long supported FSA programs, partly because the majority of the direct loan funds are targeted to beginning farmers and about 35% of guaranteed operating loans also go to farmers who are starting out.
Congress hasn’t yet approved funding for the 2017 agricultural appropriations bill, and farm organizations and some lending groups are hoping Congress will somehow come up with the extra funds for the current year.
“We’re making a last ditch appeal that they’ll up the ante, so to speak,” Hoefner says.
No one knows exactly how the current shortfall will affect production agriculture, since operating loans are typically approved much earlier in the year. Even without funds, FSA can still approve loans for the rest of this fiscal year. But it could be months before funds for approved loans are available for those farmers and ranchers.
At the ABA, Elfmann says FSA, at times, works with lenders to use a combination of loan guarantees and direct loans to help keep their farmer borrowers in business.
“The Farm Service Agency is really good at working with banks on figuring out how to help farmers,” he says. “I don’t have anything bad to say about FSA. I just wish there was a little more money in the account.”