Guide to Agricultural Finance
Federal Farm Credit System
The Federal Farm Credit Banks (FFCB) are a government sponsored enterprise (GSE, created 1916) and is a nationwide network of lending institutions and affiliated services and other entities. Through its non-deposit taking Banks and related associations, the System lends money and provides related credit and other services to farmers, ranchers, producers and harvesters of aquatic products, rural homeowners, certain farm-related businesses, agricultural and aquatic cooperatives (or to other entities for the benefit of such cooperatives), rural utilities, and to certain foreign or domestic entities in connection with international agricultural credit transactions. The Banks and related associations are not commonly owned or controlled. They are cooperatively owned, directly or indirectly, by their respective borrowers. System institutions are federally chartered under the Act and are subject to supervision, examination and regulation by an independent Federal agency, the Farm Credit Administration (FCA).
The Farm Credit System is composed of four regional Farm Credit Banks (FCB), one regional Agricultural Credit Bank (ACB) and numerous associations (approximately 99 related Production Credit Associations / PCAs, Federal Land Credit Associations / FCLAs and Agricultural Credit Associations /ACAs. The PCAs, FLCAs, and ACAs are collectively referred to as Associations) across the nation. The System Banks and Associations are cooperatively owned, directly or indirectly, by their borrowers, which are the smaller, local banks that lend directly to the agricultural sector in all 50 states of the United states and in Puerto Rico. These entities have specific lending authorities within their chartered territories.
As none of the banks within the system are deposit taking institutions, funds are raised through the issuance of Farm Credit Debt Securities in the U.S. domestic and global capital markets by the Federal Farm Credit Banks Funding Corporation (FFCBFC).The liability for FCS bond underwriting is jointly and severally shared by the farm credit banks and is guaranteed by the Farm Credit System Insurance Corporation. The bonds are high quality and similar to U.S. Treasury securities, but, as with many agency-issued securities, they are not backed by the full faith and credit of the U.S. government. They are purchased primarily by financial institutions.
- AgriBank, FCB
- Serves Arkansas, Illinois, Iowa, Indiana, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee, Wisconsin and Wyoming.
- CoBank, ACB (Agricultural Credit Bank)
- Agricultural Credit Bank with a national charter to finance agricultural cooperatives and rural utility systems, CoBank has 11 regional banking centers. Its regional office in the Northeast lends to Farm Credit associations in Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. International banking services are provided through its headquarters in Denver.
- Farm Credit Bank of Texas
- Providing short-term financing to New Mexico, Northwest Louisiana and Texas. Long-term financing to Alabama, Louisiana, Mississippi and Texas.
- AgFirst, FCB
- provides funding and financial services to 23 farmer-owned financial cooperatives in Delaware, Florida, Georgia, Kentucky (specific counties), Maryland, North Carolina, Ohio (specific counties), Pennsylvania, South Carolina, Tennessee (specific counties), Virginia, West Virginia, the District of Columbia and the Commonwealth of Puerto Rico.
- U.S. AgBank, FCB
- U.S. AgBank, FCB serves Farm Credit Associations in Arizona, California, Hawaii, Nevada, Utah, Idaho, Kansas, Colorado, Oklahoma, and New Mexico.
- The Federal Farm Credit Bank Funding corporation (?FFCBFC?) is the fiscal agent for the banks of the Federal Farm Credit system and is authorized to sell:
- Federal Farm Credit Banks Consolidated Systemwide Bonds
- Federal Farm Credit Banks Consolidated Systemwide Discount Notes
- Federal Farm Credit Banks Consolidated Systemwide Master Notes
- Federal Farm Credit Banks Global Securities
- Federal Farm Credit Banks Consolidated Systemwide Medium-Term Notes
- Agricultural lending products include:
- Crop Lines of Credit
- Breeding Stock Loans (cow/calf loan)
- Feeder Livestock Loans (stocker/feeder loan)
- Hog Loans
- Dairy Loans
- Tree and Vineyard Development
- Machinery / Equipment Loans (purchase or refinance row crop and ranch equipment, rolling stock, agri-business equipment)
- Grain Facility Loans (grain storage/merchandising)
- Feedlot Facility Loans (financing for feed and commodity inventory and accounts receivable)
- Feed and Hay Loans
- Farmland Purchase/Refinance Loans
- Farm Building Construction
- Livestock Facility Loans
- Farm Service Agency (FSA) Guaranty and Beginning Farmer Loans
Farm Service Agency (FSA)
The Farm Service Agency (FSA) is part of the U.S. Department of Agriculture, and extends and guarantees loans to family farmers and ranchers within the United States. Farmers may apply for direct loans at local FSA offices. Guaranteed loans may be available from commercial lenders who apply for loan guarantees from the FSA. The goal of FSA?s farm loan programs is to graduate its borrowers to commercial credit, thus loan relationships with the FSA are considered temporary and supervised. Loan proceeds may be used to start, purchase or expand a farming operation, or provide financing to farmers who have suffered financial setbacks from natural disasters, or who need additional resources with which to establish and maintain profitable farming operations.
As indicated above, the FSA prefers that a farmer obtain financing through a financial institution. Under a guaranteed loan, a commercial lender makes and services the loan, and FSA guarantees it against loss up to a maximum of 90.0% in most cases. In certain limited circumstances, a 95.0% guarantee is available. FSA has the responsibility of approving all eligible loan guarantees and providing oversight of a lenders? activities.
For those not yet meeting the qualifications for a loan from a commercial lender with an FSA Guarantee, the FSA also extends fully secured, direct loans, which are serviced by an FSA official. The FSA has the responsibility of providing credit counseling and supervision to its direct borrowers by making a thorough assessment of the applicant's farming operation. The FSA assists applicants to evaluate the adequacy of the real estate and facilities, machinery and equipment, financial and production management, and the applicant?s goals.
- Farm Home Ownership Loans:
- There is no minimum loan amount.
- Eligible applicants may obtain direct loans up to a maximum indebtedness of $300,000.
- Maximum indebtedness for guaranteed loans is $1,355,000 (amount adjusted annually for inflation).
- The maximum repayment term is 40 years for both direct and guaranteed farm ownership loans.
- In general, loan funds may be used to purchase a farm, enlarge an existing farm, construct new farm buildings and/or improve structures, pay closing costs, and promote soil and water conservation and protection.
- Farm Home Operating Loans:
- Eligible applicants may obtain direct loans for up to a maximum indebtedness of $300,000, and a direct operating Microloan for up to a maximum indebtedness of $35,000.
- Maximum indebtedness for guaranteed loans is $1,355,000 (amount adjusted annually for inflation).
- The repayment term may vary, but typically it will not exceed seven years for intermediate-term purposes. Annual operating loans are generally repaid within 12 months or when the commodities produced are sold.
- In general, loan funds may be used for normal operating expenses, machinery and equipment, minor real estate repairs or improvements, and refinancing debt.
- To qualify for an FSA Guarantee, a loan applicant must:
- Be a citizen of the United States, or a legal resident alien
- Have an acceptable credit history
- Have the legal capacity to incur the debt
- Be unable to obtain the loan without a guarantee
- Not have caused FSA a loss by receiving debt forgiveness on more than 3 occasions
- Not be delinquent on any federal debt
- Have the ability to repay the loan
- Provide sufficient security for the loan
Commodity loans, also referred to as Marketing Assistance Loans, are available to producers who share in the risk of producing the crop. To be eligible, the farmer must maintain beneficial interest in the crop through the time of application. Once beneficial interest in a commodity is lost, the commodity is ineligible for loan consideration.
- Emergency programs administered by the Farm Service Agency include:
- Supplemental Revenue Assistance Payment Program (SURE), which provides cash payments to eligible producers who have incurred crop production losses or crop quality losses, or both. The payment covers 60% of the difference between the SURE guarantee and total farm revenue. SURE is available to eligible producers on farms in counties with Secretarial disaster declarations, including contiguous counties, that have incurred crop production or quality losses, or both, and includes all crops grown by a producer nationwide, except grazed crops.
- Livestock Forage Disaster Program (LFP), which provides cash payments to eligible producers who suffered grazing losses because of drought conditions or fire on Federally managed land leased by producers. The payment covers 60.0% of the monthly feed cost for either 1, 2 or 3 months, depending upon the severity of the drought. For a qualifying fire on federally managed rangeland 50 percent of the monthly feed cost for the number of days the rancher is prohibited from grazing, not to exceed 180 days.
- Non-Insured Crop Disaster Assistance Program (NAP), which provides cash payments to producers of noninsurable crops when low yields, loss of inventory, or prevented planting occur due to natural disasters. The payment covers production losses in excess of 50.0% at 55.0% of price.
- Emergency Loan Program (EMP), which Provides loans to help producers recover from production and physical losses due to drought, flooding, other natural disasters, or quarantine in counties declared as disaster areas by the President or designated by the Secretary of Agriculture. Producers can borrow up to 100.0% of the actual production or physical losses minus any disaster related compensation received like insurance, up to a maximum of $500,000. Loans for crop, livestock and non-real estate losses are normally repaid within 1 to 7 years. Loans for physical losses to real estate are normally repaid within 30 years.
- Each year Congress targets a percentage of farm ownership and farm operating loan funds to socially disadvantaged (SDA) and beginning farmers:
- The applicant must make a cash down payment of at least 5.0% of the purchase price.
- The maximum loan amount does not exceed 45.0% of the least of (a) the purchase price of the farm to be acquired; (b) the appraised value of the farm to be acquired or; (c) $667,000 (Note: This results in a maximum loan amount of $300,000).
- The term of the loan is 20 years. The interest rate is 4.0% below the direct Farm Operations Loan rate, but not lower than 1.50%.
- The remaining balance may be obtained from a commercial lender or private party. FSA can provide up to a 95.0% guarantee if financing is obtained from a commercial lender. Participating lenders do not have to pay a guarantee fee.
- Financing from participating lenders must have an amortization period of at least 30 years and cannot have a balloon payment due within the first 20 years of the loan.
U.S. Department of Agriculture, Farm Service Agency, Farm Loan Programs http://www.fsa.usda.gov/FSA/webapp?area=home&subject=fmlp&topic=landing
USDA Rural Development
The USDA Rural Development, Housing and Community Facilities Programs, provides loans and grants for housing (and community facilities). Section 502 loans / Direct Loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities. Under the Section 502 program, housing must be modest in size.
Field Office Handbook Document HB-1-3550, Chapter 5 Property Requirements, Paragraph 5.4 Modest Sites, clearly indicates that a property must not include farm service buildings; however smaller outbuildings such as storage sheds are allowed. Paragraph 5.6 Modest Housing, Section D Prohibited Features, clearly indicates that properties that include income-producing land or buildings designed to accommodate a business or income-producing enterprise will not be financed.
Commodity Credit Corporation (CCC)
Daily LDP Rates - USDA, Farm Service Agency (FSA) http://www.fsa.usda.gov/FSA/displayLDPRates?area=home&subject=prsu&topic=ldp-ldp
Direct and Counter-cyclical Payment Program (DCP) - USDA, Farm Service Agency (FSA)
In the United States, the Commodity Credit Corporation (CCC) provides financing to farmers. The purpose of the CC is to make sure that there are adequate supplies of agricultural commodities (foods, feeds and fibers) for the population and also to stabilize and support farm income through loans, purchases, and payments (the CCC has its own disbursing authority and utilizes the Federal Reserve Bank system and United States Treasury to make payments). The agency also seeks to facilitate the orderly distribution of agricultural commodities. The CCC is a wholly-owned government corporation within the U.S. Separtment of Agriculture (USDA). The CCC has no actual employees; it carries out the majority of its program through personnel and facilities of the Farm Service Agency (FSA) and other USDA agencies such as the Agricultural Marketing Service (AMS), Foreign Agricultural Service (FAS).
Crops covered include wheat, corn, oilseeds, cotton (upland and extra long staple), rice, tobacco, milk and milk products, barley, oats, grain sorghum, mohair, honey, peanuts, and sugar.
The CCC has an authorized capital stock of $100 million held by the United States, with the authority to have outstanding borrowings of up to $30 billion at any one time. Funds are borrowed from the U.S. Treasury and may also be borrowed from private lending agencies and others. All CCC-issued bonds, notes, debentures, and similar obligations are subject to approval by the Secretary of the Treasury. Interest on borrowings from the Treasury (and on capital stock) is paid at a rate based upon the average interest rate of all outstanding marketable obligations (of comparable maturity date) of the U. S. government as of the preceding month. Interest may also be paid on other notes and obligations at a rate prescribed by CCC and approved by the Secretary of the Treasury.
- U.S. Government payments through the CCC consist of:
- Direct Payments (DP)
- Countercyclical Payments (CCP) (DP and CCP are payments that are decoupled from current production and are paid on historic base acres and payment yield)
- Loan Deficiency Payments (LDP)
- Marketing Assistance Loans
- Non-insured Assistance Program is for producers of crops that are unable to obtain crop insurance through an insurance product.
- Marketing Loan Gains (MLG)
- Disaster Payments
- Conservation Reserve Program is designed to identify and place into safeguard highlt erodible and environmentally-sensitive cropland by placing it in long term protection.
- Milk Income Loss Contracts (MILC) compensates dairy producers when domestic milk prices decline below a specified level.
The CCC also administers export credit guarantees for commercial financing of U.S. agricultural exports. The guarantees encourage exports to buyers in countries where credit is necessary to maintain or increase U.S. sales, but where financing may not be available without CCC guarantees. The Export Credit Guarantee Program (GSM-102) covers credit terms up to three years. GSM-102 underwrites credit extended by the private banking sector in the United States (or, less commonly, by the U.S. exporter) to approved foreign banks using dollar-denominated, irrevocable letters of credit to pay for food and agricultural products sold to foreign buyers.
To receive loans or loan deficiency payments (LDP) for a crop, a producer must execute a note and security agreement or loan deficiency payment application on or before May 31 of the year following the year in which such crop is normally harvested. To receive direct payments, an individual or entity must be a producer on a farm with base acres enrolled in the Direct and Counter-cyclical payment Program (DCP). Producers may elect to receive a 22% advance payment when they enroll in the DCP. Base acres are established on a farm for covered commodities based on historical plantings. For instance, for each covered commodity, the direct payment in 2008 equaled 85% of the farm's base acreage for the crop, times the direct payment yield for that crop, times the direct payment rate for that crop. The 2008 Farm Bill authorizes direct and counter-cyclical payments, with some changes, that were previously authorized for preceding crops under the Farm Security and Rural Investment Act of 2002 (the 2002 Farm Bill).
Marketing assistance loans provide producers interim financing at harvest time to meet cash flow needs without having to sell their commodities when market prices are typically at harvest-time lows. Loans for covered commodities are non-recourse because the commodity is pledged as loan collateral and producers have the option of delivering the pledged collateral to the CCC in satisfaction of the repayment of the outstanding loan at maturity. A settlement value is determined and applied to the outstanding loan principal and interest.
The CCC acquires title to agricultural commodities in the administration of its programs under various circumstances. For instance, it is under Title I of the Farm Security and Rural Investment Act of 2002, that the CCC makes marketing assistance loans to producers that can lead to forfeiture of the commodities to CCC.
The district courts of the United States, including the district courts of the District of Columbia and of any Territory or possession, have exclusive jurisdiction, without regard to the amount in controversy, of all suits brought by or against the CCC. Any suit against the CCC must be brought within six years.
Producers annually receive CCC-1099-Gs detailing payments producers have received from the Commodity Credit Corporation.
- Agricultural Credit Associations (ACAs)
- Provide financing to farmers, ranchers, agriculture-related businesses and rural residents for the purchase, improvement or refinancing of debt on real estate. ACA's also provide financing for expenses associated with the production, processing and marketing of food and fiber, as well as for equipment, facilities and livestock.
- Federal Land Credit Associations (FLCAs)
- Provide financing for the purchase, improvement or refinancing of debt on real estate.
- Federal Land Bank Associations (FLBAs)
- Provide financing for the purchase, improvement or refinancing of debt on rural real estate such as farms, timberland, recreational property, agribusiness firms and rural homes.
- Adjustable or fixed interest rate financing.
- Monthly, quarterly, semi-annual or annual payment options.
- Production Credit Associations (PCAs)