[Agriculture Fact Book 98]

Agricultural Credit

Farm business debt at the end of 1996 was $156.2 billion, up $5.1 billion from 1995. Farm real estate debt rose $2.4 billion from 1995 to $81.9 billion at the end of 1996. Farm business non-real-estate debt was $74.2 billion at the end of 1996, up 4 percent from 1995. The increase in farm debt in 1996 is slightly higher than the recent trend of modest growth in outstanding loan balances.

Farmers and lenders, despite concern about reduced short-term profitability in some livestock enterprises, maintain confidence in the long-run profitability of agriculture. The availability and use of credit play a significant role in the sustained profitability of farm enterprises. In this regard, a symbiotic relationship exists between agricultural producers and their lenders; the health of one depends on the condition of the other.

Loans made to agricultural producers are classified as real estate and non-real-estate loans in the farm sector accounts. Real estate loans generally have terms of 10 to 40 years, and are ordinarily used to purchase farmland or to make major capital improvements to farm property. Non-real-estate loans are typically made for loan terms of less than 10 years, with the term depending on the purpose of the loan. Seasonal operating loans are made for less than 1 year, while loans to purchase machinery and equipment or livestock may run for 7 years or more.

At the end of 1996, the Farm Credit System held $25.8 billion in farm business real estate loans and $14 billion in non-real-estate loans. In total, the Farm Credit System held about 25 percent of farm business loans. While the Farm Credit System has lagged behind commercial banks in increasing loan balances and in gaining market share, it continues to report improved financial performance. Favorable interest rate spreads improved their earnings during 1990-96. Improved borrower financial conditions have translated into improved Farm Credit System performance.

Commercial banks held about 40 percent of all farm business debt by the end of 1996, accounting for $23.4 billion in real estate loans (28 percent of total) and $39.8 billion in nonreal estate debt (52 percent). Life insurance companies maintained their presence in the agricultural credit market, as their total farm business debt rose slightly to $9.5 billion, giving them a 12- percent share of the farm business mortgage market. Farm Service Agency (which includes part of the former Farmers Home Administration) direct loans to farm businesses dropped by $1 billion in 1996. The "Individuals and others" classification is composed primarily of sellers financing the sale of farmland, input suppliers, farm machinery finance corporations, and some minor lending agencies. These accounted for $18 billion in real estate loans and $17.4 billion in non-real-estate loans at the end of 1996.

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