AGRICULTURAL CREDIT OUTLOOK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00363R001002170005-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 5
• Document Creation Date: December 21, 2016
• Document Release Date: September 2, 2008
• Sequence Number: 5
• Publication Date: January 27, 1983
• Content Type: MEMO

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DEPARTMENT OF AGRICULTURE
OFFICE OF THE SECRETARY
WASHINGTON. D. C. 20250
January 27, 1983
MEMORANDUM FOR CABINET COUNCIL ON FOOD AND AGRICULTURE
FROM: John R. Block
Secretary. of Agriculture
SUBJECT: Agricultural Credit Outlook
BACKGROUND
During the past 60 days, the news media have extensively reported on a
number of farm sales which. have been disrupted by a small group of farmers
and rural residents. The. reports suggest that the Federal Government is
actively forcing out of business small family farmers through foreclosures
and withdrawal of necessary operating credit.
Beginning in 1970, there has been a rapid increase in the total outstanding
farm debt from $54.5 billion to an estimated $215 billion in 1983. As
farmers expanded their operations and invested heavily in capital equipment,
the lending community made credit readily available. This credit availability
relied heavily on the rapidly inflating values of real estate which continued
to rise during the decade.before.leveling off -- and beginning to show slight
declines -- in 1981 and 1982. During this period, many lenders did not
adequately supervise. their loans. They frequently neglected to determine
whether adequate. repayment ability existed as producers expanded. In some
regions of the country, principally the South and Southeast, changing
cropping patterns and consecutive years of poor weather put further pressure
on lenders for liberal lending standards to accommodate the financial needs
of agricultural producers.
Beginning in 1977, the commercial and Farm Credit System lenders found it
necessary to begin to review. agricultural loan standards more carefully.
However, at this same point, the Congress passed the Economic Emergency
Act which. provided unusually liberal lending standards for the Farmers
Home Administration. This Act, coupled with asimilar program in the Small
Business Administration, produced a massive runup in Federal farm lending,
substantial amounts of which were. of poor quality and counter-productive
to the best interests of the individual producer.
Thus, as the agricultural community entered the 1980's, marked by rapidly
escalating interest rates and high inflation, the accumulation of large
agricultural surpluses and depressed agricultural commodity prices, a small
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but significant number of agricultural producers found themselves under
major economic stress. Although actual numbers of foreclosures remain
small, as a percentage they have more than doubled between 1981 and 1982
and appear to be holding at about 1982 levels or slightly higher as we
move into the 1983 lending season.
Currently, delinquent accounts held by commercial and Farm Credit System
lenders range from 2.5 to 3.9 percent of their portfolios. At the same
time, the delinquent accounts of USDA's Farmers Home Administration,'the
lender of last resort, currently make up 24 percent of its portfolio of
268,000 borrowers. During 1982, completed foreclosures for the Farm Credit
System, the largest agricultural. lender, totaled approximately 1,200 while
the Farmers Home Administration had 844. Commercial and Farm Credit System
lenders are genuinely concerned about the trend they are experiencing.
For example, the Farm Credit System's Production Credit Associations which
provide short term credit to farmers, report that loan losses increased
from $22 million in 1981 to $156 million in 1982. The 1982 figure represents
75 percentof the total losses which had been experienced by that System
in its entire history prior to 1982. While the Farm Credit System anticipates
a leveling off of this trend in 1983, commercial and Farm Credit System
lenders have. tightened their agricultural lending standards to require
adequate. repayment ability in addition to adequate security. This has
placed additional pressure on the Government lending agency, Farmers Home
Administration, to accommodate commercial lenders or assume additional
agricultural loans directly. As a result, the total market share of
Government agricultural lending by FmHA and CCC has risen dramatically
through 1982 and will continue to rise in 1983. In total, the-Government
through FmHA and CCC will provide an all-time record level of short term
credit to the farming community of approximately $16'billion- in 1983.
Although. the actual number of producers facing serious financial difficulty
is small, there. is a public perception enhanced by the media that the
problem is more widespread and serious than the record would support. This
perception has led Congress four times in the last 18 months to attempt to
pass some form of loan deferral legislation. These bills have had one
common thread: they would allow, at the request of the farmer, a moratorium
on loan repayments to FmHA for a period-certain. USDA has aggressively
opposed th.ils type. of legislative action. The Farm Bureau and leaders in
various commodity organizations have indicated that the farming community
strongly supports the position that each farmer's situation should be
evaluated individually and that a general moratorium should not be granted.'
In the next few weeks, at least eight significant legislative proposals
on agricultural credit can be expected to be introduced. Congressional
Agricultural Committee leaders in the Congress, particularly the House,
have indicated that they will concentrate their Congressional attention
on the credit question during the next few months. Attachment 1 summarizes
the most significant proposals being brought forward by Congress.
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The major media outlets indicate. significant continuing attention to this
issue wh.ich.will probably occur during the next 60 days, including segments
being developed for "60 Minutes" and the major weekly news magazines.
USDA PLANNED ACTIONS
1. USDA implemented case-by-case lending guidelines in 1982 which gave
broad discretion on an individual basis to assist borrowers under
financial stress. During 1982, 40,000 of the 268,000 borrowers of
FmHA received special consideration in the form of deferrals,
reschedulings, the carrying of delinquent accounts or other actions
to assist them to continue in operation. Of these 40,000 actions,
20,000 involved subordination of the Government's collateral position
to commercial lenders so that the commercial and Farm Credit System
could supply credit to their regular customers. USDA intends to
continue to aggressively use these authorities through the 1983
lending season.
2. USDA's PIK program will reduce the total credit that is needed for
production expenses in the year ahead and will thereby reduce some of
the financial lending stress which producers are experiencing.
3. USDA intends to aggressively oppose general moratorium and deferment
legislation, new lending schemes and any legislation which would lead
to assumption of commercial sector poor lending risk. These types of
lending policies are counter-productive in almost all cases to the
interest of the. individual producer. In addition, they lack the
support of the general farming community and represent major budget
impacts.
4. USDA will meet with agricultural financial lenders and farm commodity
organization leaders on a regular basis during the balance of the
lending seas.on to monitor financial conditions and the severity of
credit problems. This commitment to ascertain an accurate. picture
of credit conditions represents the continuation of an effort
commenced by Secretary alock.over a year ago..
5. USDA expects support from organizations such as the. Farm Bureau for
the Administration's opposition to general moratorium and deferral
le.gi.slation. USDA will also undertake a campaign to inform its farm
audiences and the. media of the substantial actions taken by the
Administration to demonstrate. compassion and concern to the current
problems faced by some. producers.
6. USDA has issued guidelines which have been successfully used by the
Farmers Home Administration's.lending officials in effectively handling
disruptive actions by a small number of militant rural residents and
farmers in incidents involving farm sales. Similar training efforts
in handling these situations will be undertaken by the Farm Credit
Administration for its lenders next week. USDA, through the Cabinet
Council on Food and Agriculture., will provide senior staff centralized
information concerning farm foreclosure sales, bankruptcies, and loan
delinquent rates. for the. balance of this lending season which ends in
late April.
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Attachment 1
Prospective 1983 Legislative Proposals Affecting FmHA
Bills which have been introduced in the new session:
A. H.R. 568 - Sponsor - Evans (Iowa) requires farmers to implement
conservation plans as an eligibility prerequisite for FmHA loans
to acquire or enlarge farms.
B. H.R. 589 - Sponsor - Gore (Tennessee) permits FmHA to make
emergency loans of_up to $5,000 on the basis of estimated
farmer loss.
C. H.R. 590 - Sponsor - Gore (Tennessee) reduces the disaster
emergency loan rate to 5 percent for the amount of loss and
the interest rate for other loan purposes to the cost of
money instead of prevailing market rates..
II Probable additional legislative proposals which are expected to be
introduced:
A. Sponsor - Daschle (South Dakota) and Dorgan (North Dakota) -
A general deferral moratorium bill closely resembling a.
comparable proposal of the last legislative session known as the
Daschle Farm Crisis Bill.
B. Sponsor - Alexander (Arkansas) - A bill providing for FmHA
to guarantee (90 percent) any private farm loan that is
considered to be high risk in nature, i.e., delinquent or
nearing foreclosure. It further provides FmHA authority to
buy up such guaranteed loans.
C. Sponsor - Cochran (Mississippi) - A 1983 Farm Credit bill
expected to be introduced this week. Cochran and others
as sponsors are developing a broad based farm credit relief
package which is expected to include proposals on deferral
moratorium and additional lending authorities and higher
loan size limits for FmHA.
D. Sponsor - Huddleston (Kentucky) - A competing Democratically
sponsored general farm bill with major farm credit sections
aimed at FmHA as an alternative to the expected Cochran
proposal.
E. Sponsor - Pepper (Florida) - A general economic recovery
bill is expected which will incorporate a farm loan
repayment moratorium feature.
F. Sponsor - Sasser (Tennessee) - A two-year loan deferral bill
coupled with some modification of the economic emergency loan
provision..
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III Administration proposal:
Congress did not complete action on reauthorization of the Consolidated
Farm and Rural Development Act in the last session. The Agricultural
Credit Subcommittee under Ed Jones is expected to develop a Congressional
proposal. The Administration is preparing for transmittal an authorization
proposal corresponding to the President's 1984 budget request and certain
other minor modifications.
Committee staffs indicate that additional proposals by other members are
expected and that it is the House Agriculture Committee's intention to
concentrate on credit questions during the early period of this session.
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