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Agrimarketing : October 2012
60 Agri Marketing October 2012 Innovations and the regulatory environment have been major drivers of change in the delivery of financial services and risk man- agement tools to agricultural pro- ducers these past five decades. Advances in electronic technology, the implementation of new financial products, and improvements in credit underwriting procedures have clearly revolutionized the delivery of financial products and services. However, lender- customer relationships continue to be a foundation in the agricultural financial services industry. FARM DEBT Nominal farm debt has increased from $22 billion in 1960 to an estimated $261 billion in 2012, or average annual increase of 4.8% (Figure 1). In constant-dollar terms the average annual increase in farm debt has been 1.2%. However, the real growth has been relatively flat since the early 1990s. In constant-dollar terms, farm debt is still substantially below the peak levels observed in the early 1980s. Farm assets have increased 5.3% and 1.67% in nominal and constant dollar terms respectively. As a result, the average leverage in the farm sector has decreased to 10.2%, the lowest level over the past 50 years. REGULATORY, ECONOMIC ENVIRONMENT The commercial bank regulatory environment of the 1960s was characterized by geographic limitations on banking, restrictions of banking activities, interest rate limits and deposit insurance. The formation of savings and loan associations, mutual savings banks, mutual and pension funds led to some product differentiation. Conditions in the 1970s changed as a result of inflationary pressures and evolution of financial markets that were becoming more global. Currency exchange rates became flexible and securitization was increasing. Bank regulation changed substantially in the 1980s including deregulation of interest rates. In the 1990s, Congress passed legislation that allowed banks to branch interstate resulting in a more rapid consolidation of the banking system. The number of banks has declined from more than 14,400 in the early 1980s to 6,291 in 2012 (Figure 2). AG CREDIT AND CROP INSURANCE by Dr. Paul Ellinger, University of Illinois (more on page 62) Source: Federal Deposit Insurance Corporation HEAD OFFICES AND BRANCES OF COMMERCIAL BANKS Figure 2. Source: USDA, Economic Research Service U.S. FARM DEBT Figure 1.
November December 2012