By ANN HINCH
Assistant Editor

LOUISVILLE, Ky. — With the failure of several Wall Street heavy-hitters pushing Congress and the White House to draft legislation for a $700 billion bailout, U.S. farmers and other agricultural investors may worry about their financial systems, as well.

According to Bill Medley, vice president of marketing for Farm Credit Services of Mid-America (FCS), its rural lending interest rates have increased in the last week or so, but he believes overall farm credit in the United States is still sound.

“We’re glad to say the Farm Credit system hasn’t had any calamities,” Medley reported on Friday.

Based in Louisville, FCS serves approximately 86,000 customers. Medley said it currently makes about 115,000 loans worth $14 billion, and is part of a nationwide network of independently owned and operated agricultural financial institutions under the Federal Farm Credit Banks Funding Corp. (FFCB), established by Congress in 1916.

“Agriculture’s healthy,” Medley said. “We’re not turning over billions of dollars in loan losses like you’re seeing elsewhere … For the past year, farmers have benefited from lower short-term (interest) rates.”

Lately, however, those rates have gone up because of nervousness in the markets, he said – losses this large are felt across all kinds of credit institutions. When the federal government promises to cover losses, he explained it sells debt.

“We’re not the U.S. Treasury, so we have to pay investors a little bit of a premium,” he said, explaining higher recent loan rates. “We don’t know if that’s going to last; we hope it’s a very short-term phenomenon.”

Short-term rates (such as for operating and equipment loans) have been down for awhile, he said, and long-term rates (such as ag mortgages) have been flat, too. For the last year, especially, Medley said farmers have benefited from low rates on both.

By contrast, between Sept. 12 and Sept. 19, for example, he said the FCS operating loan interest rate had gone up from 5.25 to 5.4 percent, and capital cost loans – such as for tractors or other equipment – also had risen. Variable rate mortgages can be as low as 5 percent, but he said 15-year fixed rate loans had gone from 6.75 to 7 percent, and 25-year loans, from 7.25 to 7.55 percent.
Most big banks, Medley said, hold mortgage-backed securities. When mortgage payers go into default and foreclosure on such a large scale, problems arise.

According to the FFCB website, approximately 35 percent of U.S. farm credit is through FFCB’s nearly 100 institutions; Medley said about that much more is handled through commercial banks. The other approximately 30 percent is through private individuals, insurance companies and other ag credit services.

From his perspective, Medley said the level of farm loan delinquencies and defaults are “nothing at all that’s alarming us” right now. He referred to news from two weeks ago that Farmer Mac (Federal Agricultural Mortgage Corp.) experienced big losses in its shares, related to recent Fannie Mae and Freddie Mac problems; however, he said Farmer Mac is handled separately from the FFCB.
And, FFCB’s website states “no (Farm Credit) System institution other than Farmer Mac is liable for any debt or obligation of Farmer Mac.”

Farm World was not able to reach anyone with FFCB prior to deadline.