FCA News Release 06-05

News Release

Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Farm Credit System Lending to Young, Beginning, and Small Farmers and Ranchers Continues to Increase

McLEAN, Va., May 11, 2006 — The Farm Credit Administration (FCA or Agency) Board today heard a report on Farm Credit System (FCS or System) service to young, beginning, and small (YBS) farmers and ranchers in 2005. The report showed that the dollar volume of loans to all three categories of YBS farmers and ranchers has increased every year since 2001. There was an increase in the percentage of the System’s total loan portfolio for beginning borrowers, though the percentage fell slightly for both young and small farmers and ranchers.

The report is part of the FCA Board’s continuing effort to ensure that the FCS responds to the current and future needs of YBS farmers and ranchers for credit and services. FCA instituted new YBS definitions and reporting requirements for the System in 2001. In March 2004, the FCA Board approved a regulation strengthening YBS programs and policies at System banks and associations.

FCA Chairman and CEO Nancy C. Pellett said, “It is clear from the data presented today that the Farm Credit System is making a strong effort to serve and address the needs of young, beginning, and small farmers and ranchers. However, given the dynamic economic and financial picture in agricultural production today, serving the needs of YBS farmers must continue to be a high priority. FCA will continue to focus on YBS lending programs to ensure the FCS continues to meet the needs of YBS farmers and ranchers who are so critical to the future of agriculture and rural America.”

The report highlighted the generally upward trend in new loans to YBS farmers and ranchers by FCS institutions since 2001. In 2005, the System made $5 billion in young farmer loans, $8.2 billion in beginning farmer loans, and $10.9 billion in small farmer loans. In 2004, the FCS made $4.4 billion in loans to young farmers, $6.8 billion in beginning farmer loans, and $9.8 billion in small farmer loans.

The System had outstanding loans and commitments to all farm borrowers of more than $102 billion at the end of 2005. As a percentage of the System’s total loans outstanding, the $22 billion in loans to beginning farmers grew at a slightly faster pace than other YBS categories in the System. There was a slight decrease in the percentage of the System’s total loan portfolio for young borrowers ($14 billion) and for small borrowers ($33 billion).

At year-end 2005, 12.3 percent of the dollar volume of the System’s farm loan portfolio was to young farmers, 19.4 percent to beginning farmers, and 29.2 percent to small farmers. In 2004, 12.7 percent of the dollar volume of the FCS farm loan portfolio was to young farmers, 19.1 percent to beginning farmers, and 31 percent to small farmers. YBS data are reported for each of the three categories. The categories are mutually exclusive and cannot be added together.

The report also included Census of Agriculture trends and changes in agricultural demographics. The number of young farmers entering agriculture has continued to decline over the past several decades, down from 15.9 percent of all farm households in 1982 to 5.8 percent in 2002, according to the most recent U.S. Department of Agriculture census. Small farmers comprise more than 93 percent of all farm households across the country, and nearly 78 percent of their household income is from off-farm sources.

Systemwide data on YBS lending and data by individual associations are available on the Agency’s Web site at www.fca.gov.

In other business, the FCA Board affirmed staff’s determination that FCA currently does not have any “significant regulatory actions” as defined by Executive Order 12866. A significant regulatory action would have an annual effect on the economy of $100 million or more; create a serious inconsistency or interfere with an action of another agency; materially alter the budgetary impact of entitlements or grants; or raise novel legal or policy issues arising out of legal mandates.

The FCA Board received a report on the status of FCS Investments in Rural America. The Investments in Rural America pilot initiative is designed to strengthen the System’s mission to provide for an adequate and flexible flow of funds to agriculture, agribusinesses, and rural communities across the country. The program also gives FCS institutions greater flexibility to partner with agriculture and rural lenders to increase the availability of affordable funding to rural communities to help stimulate economic growth and development.

Since January 2005, when FCA issued guidance to System institutions on Investments in Rural America, the Agency has approved five pilot investment programs and seven other mission-related investments. Programs include investments in agriculture and rural community bonds targeted at rural economic development, utilities, and renewable energy projects; mortgage securities that help increase the availability of affordable housing in rural areas; and a partnership that gives beginning farmers greater access to capital.

The FCA Board also received a report from the Agency’s Office of Examination on the financial condition of the FCS as of December 31, 2005. The report showed that the overall combined System financial condition remained fundamentally sound in all material respects and its performance was strong. Since year-end 2004, both FCS assets and capital increased to $140 billion and $23 billion, respectively. The FCS’s asset quality statistics continued to reflect a high performing portfolio and a very manageable level of risk with less than 0.6 percent of loans classified nonperforming. Earnings remained strong with net income of $2 billion resulting in a return on assets of 1.6 percent.

The Board also received a quarterly informational report from the Agency’s Office of Management Services. The report highlighted recent organizational changes, operational projects, budget status, and proposed human capital plan.

Since the April 6 Board meeting, the following notational votes have occurred. Notational votes are actions taken by the FCA Board between Board meetings.

The FCA Board voted to reopen the comment period on the proposed rule to revise the risk-based capital requirements for the Federal Agricultural Mortgage Corporation (Farmer Mac). The comment period will now close on May 17, 2006.

The Board gave preliminary approval to a request from the Federal Land Bank Association of Texas, FLCA to consolidate with the newly formed Production Credit Association, to be known as the Central Texas PCA, and to establish Central Texas Farm Credit, ACA with subsidiaries.

The Board authorized American AgCredit, ACA to issue additional preferred stock to members of the association.

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The Farm Credit Administration is the safety and soundness regulator of the cooperative Farm Credit System. FCA charters, regulates, and examines the 109 banks, associations, and service corporations of the System. System institutions make loans to agricultural producers and their cooperatives nationwide. Members of the FCA Board are Nancy C. Pellett, Chairman and CEO, Douglas L. “Doug” Flory, and Dallas P. Tonsager.

Note: FCA news releases are available on the Internet. Access the FCA Home Page at www.fca.gov.