Recently it was announced that the stockholders of Badgerland Financial, AgStar Financial, and 1st Farm Credit Services have voted in favor of the merger of the three Midwest Farm Credit organizations. The newly merged organization will be named Compeer Financial and provide services to almost 50,000 customers in Wisconsin, Minnesota, and Illinois starting on July 1, 2017. This merger is one of several other proposals of mergers of Farm Credit System organizations in the past year.
I did receive calls from readers concerning the mergers and the perceived impact they may have on stockholders. I also had a conversation with an agricultural lender in Broken Bow, NE, and he shared his thoughts on the Farm Credit System and the mergers. There are some questions and concerns that have been expressed that can be looked at from many sides.
The first thing to remember when looking at the Farm Credit System is to look back to the time the system was established. In 1908 President Theodore Roosevelt’s Country Life Commission recommended a cooperative credit system to provide credit to ranchers and farmers. President Taft sent a group to Europe in 1912 to study agricultural credit systems, and when the group returned, they proposed the idea of creating federally controlled land banks to provide much needed credit to farmers.
In 1914 President Wilson endorsed the idea of rural land credits, which eventually led to the passage of the Federal Farm Loan Act that was signed by President Wilson on July 17, 1916. This act created the Federal Land Banks and the Federal Farm Loan Board. It is interesting to note that Democrats, Republicans, and Independents supported the creation of the Farm Credit System even at a time when the nation was highly divided over the issue of the war in Europe and many other issues that divided the people of this great nation at that time.
There has been an evolution within the Farm Credit System over the past 100 years. The system still provides dependable credit to those that make up the farm, ranch, and agribusiness interests of rural areas of the United States. Based upon information from the Farm Credit Council, there were over 1,062,364 loans held by the Farm Credit System on December 31, 2016.
Over 500,000 people are customers of the Farm Credit Service, and total loan volume was $253 billion as of December 31, 2016. Loan size has grown as the size of farm operations has grown over the years. The Farm Credit System market share has also grown over the years with the market share estimated at 40%. This market share does vary from state to state and greatly within states.
The Farm Credit System sells bonds to raise funds to lend to customers. Loans are made with the funds raised from bond sales, and customers are to repay their loans to allow for the repayment of the funds obtained from bond sales. The Farm Credit System is regulated by the Farm Credit Administration which is an independent federal agency. The ability to sell bonds allows for access to loan funds that are lent at competitive rates.
Some flags have been raised by the American Bankers Association and some members of farm groups concerning the Farm Credit System. The Nebraska banker I spoke with complained that the rates that farm credit customers are charged are too low and that banks do not have access to the same pool of loan cost funds as the Farm Credit System does. The banker also complained that banks are over regulated and must pay higher amounts of taxes on income they earn compared to the Farm Credit System.
Some farmers claim that the Farm Credit System prefers to only lend to certain market segments and avoids lending to certain classes of farmers. One such group is small farmers and ranchers. In my research I found that the Farm Credit System as a whole made $12.2 billion in loans to small farmers and ranchers in 2014.
Rural Wisconsin has benefited from the Farm Credit System over the past 100 years. Perhaps evolution will bring the Farm Credit System and the American Bankers Association together to develop ideas for collaboration? Wisconsin farmers are witnessing mergers in seed suppliers, farm supply cooperatives, implement brands and dealers, and many other areas. Change is one thing we can depend on.
Bob Panzer farms in Chippewa County, WI and is a retired lender that offers farm management consulting in the Midwest and Great Plains regions. He may be contacted at 920-539-8728.