Farm Credit head: Stabilize ethanol, pass USMCA
Farmers need the Trump administration to stabilize the biofuels market and Congress to approve the U.S.-Mexico-Canada Agreement on trade, Farm Credit Administration Chairman and CEO Glen Smith told the House Agriculture Commodity Exchanges, Energy and Credit Subcommittee today.
Asked by House Agriculture Committee Chairman Collin Peterson, D-Minn., for his views on biofuels, Smith said he is following the industry “extremely closely.”
“To keep that industry vital and growing as promised is critical,” Smith said. “This country and Congress called on the industry to fill a need” and “it is only fair” to farmers for the government to maintain a stable market for corn-based ethanol and biodiesel.
Smith also told Rep. David Scott, D-Ga., that Congress should pass the USMCA “as soon as possible.”
The Market Facilitation Program payments that the Agriculture Department has created through the Commodity Credit Corporation to make up for lost exports are helping farmers in the short term, but “long term we need those markets back,” he said.
Asked by Scott about farmer suicides, Smith said farm credit institutions try to be “empathetic lenders” and loan officers try to watch for signs of borrowers in trouble.
“A farm isn’t just a job. The whole identity is in that piece of land,” Smith said.
Smith confirmed to Rep. Cindy Axne, D-Iowa, that some farmers are turning to alternative lenders who charge high interest rates, as the Wall Street Journal reported, but Smith said the number is small.
The Farm Service Agency should be the lender of last resort, he said.
Smith told Rep. Rick Crawford, R-Ark., that student loan debt is a problem for young and beginning farmers, but added he is not sure how to handle it.
Discussing the farm economy in general, Smith said he sees the current situation as similar to the early 1980s as opposed to the late 1980s when there was a farm crisis. Land has lost 15 to 20 percent of its value, loans have eroded and, just as there were export problems after the United States imposed an embargo on grain shipments to the Soviet Union, there is a trade war. The difference, he said, is that interest rates in the early ’80s were high and now they are low.
There is a “creep of deteriorating financial quality,” Smith said. “The numbers are not alarming but not improving.”
Asked by Rep. David Rouzer, R-N.C., to describe the rural economy in five years if farm income remains low, Smith said he is more concerned about interest rates rising.
In prepared testimony, Smith said that even though farm income is well below the record levels set six or seven years ago, “With the large payments provided by USDA’s Market Facilitation Program, net cash farm income will likely be close to the average for the past two decades. Debt is also rising. U.S. farmers have taken on an estimated $41 billion in additional farm debt over the past three years. Adjusted for inflation, total farm debt outstanding is nearing the record set almost 40 years ago. Income shortfalls have cut working capital and elevated borrowing needs. With cash flows tight, the number of producers finding it difficult to repay their loans is growing, albeit at a modest pace. Increasingly, producers are restructuring their debts to improve their cash flow.”
Scott asked if FCA has the budget to do a proper job of regulating the farm credit system, and Smith said he does have the budget he needs.
Smith also testified that the Farm Credit System and Farmer Mac, the secondary market for agricultural real estate and single-family real estate mortgages and rural home loans, are both sound.
Former House Agriculture Committee Chairman Rep. Frank Lucas, R-Okla., and 80 of his colleagues last week introduced the Protect Farmers from the SEC Act.