Wall Street Collpases: Farm Credit System is Solid

US - The global financial crisis has undoubtedly had an impact on agriculture, but analysts believe that the Farm Credit System remains strong and is well prepared to take on proceeding effects.

7 October 2008

2 minute read

North America

Combined with the issues facing the credit markets and a general drop in commodity prices, the general level of uncertainty continues to increase. Factor in escalating input costs and the challenges become further evident, says Usagnet.

According to Usagnet, the cost of planting the 2008 crop increased approximately a third over 2007 and most analysts predict that the price of seed, fertilizer and land (either renting or buying) will again increase in 2009. Coupled with an increase in demand for credit, the agriculture sector is likely to face a number of challenges in the year ahead.

Despite these factors, Farm Credit System institutions remain well positioned to continue providing a steady supply of credit to farmers, ranchers, their cooperatives and others in rural America.

Usag reports that while the Nation's attention has been focused on the challenges facing Wall Street, Farm Credit's cooperative structure consisting of customer-elected directors has kept these institutions focused on serving their mission and maintaining the financial strength necessary to continue to serve agriculture during difficult times.

Agriculture enjoys substantial benefits from its cooperatively structured government sponsored enterprise (GSE). Profits get returned to borrowers through patronage distributions or are retained to ensure that their institution has the capital necessary to meet growing credit demands. As cooperatives, System institutions do not issue publicly traded stock and, therefore, avoid the conflict with mission that has troubled other GSEs.