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Agrimarketing : October 2012
Very few agricultural banks failed between the Great Depression and the early 1980s. Of the 548 banks that failed between 1984 and 1987, 205 were agricultural banks. The FCS also incurred substantial losses resulting in a $4 billion financial assistance program for its vulnerable entities. Three separate legislative acts in the 1980s dealt with the FCS loan loss and capital problems resulting in considerable consolidation and restructuring. As a result the number of associations declined from 915 in 1985 to 82 in 2012. After the agricultural credit crisis, agricultural lenders improved credit underwriting procedures and loan portfolio evaluations. Additional emphasis was placed on cash flow and debt repayment analysis and stress testing borrowers and loan portfolios. Computer technology certainly enhanced the ability to measure and monitor borrower performance. More sophisticated data systems are now in place to measure credit risk at borrower portfolio levels. MARKET SHARES The market shares lenders providing credit to agriculture have also changed substantially over the past 50 years. Seller financing (individuals) and insurance companies provided the largest shares of farm real estate debt in the 1960s (Figure 3). The FCS market share increased steadily through the 1970s while commercial banks increased after the agricultural credit crisis of the early 1980s. Today, the FCS and commercial banks are the largest holders of farm real estate debt at 46% and 38%, respectively. Commercial banks and input suppliers/other lenders were the primary sources of non-real estate credit in the early 1960s (Figure 4). The market share of input supplier/ others have decreased steadily and FCS has increased market share of non-real estate credit. Today, commercial banks and the FCS are the largest holders of farm real estate debt at 51% and 38%, respectively. The government (FmHA/FSA) played a large role in financing higher risk borrowers during the agricultural credit crisis in the 1980s. The government’s market share of debt during this time exceeded 24%. TECHNOLOGY ADVANCES Communication, information and computer technology brought substantial changes to the delivery of financial services and products to agricultural borrowers. Internet and October 2012 Agri Marketing 63 Ag Credit | Overview (more on next page) 60-64 am agcredit_10.12.qrk:52-56 am machinery_10.12 10/25/12 3:43 PM Page 63
November December 2012