This post continues the topic of the previous post. In this post, I discuss the recent experience of Farm Credit's loan portfolio.
The concern of the AP article cited in Part 1 was that farm debt is increasing rapidly, and that this could lead to a financial crisis like the 1980s. First, let me say that we are not seeing this locally in Yankee. Dairy farmers (nearly 60% of our loan volume) had perhaps the best year ever in 2007, similar to the record times for crop farmers. But they paid down debt, instead of taking on more debt to expand. Perhaps that's because the memories of bad times are more recent for northeastern dairy farmers (2006) than for midwestern crop farmers (1980s).
The two largest associations in the Farm Credit System are both in the midwest, and they are both mentioned in the AP article previously referenced. Farm Credit Services of America, ACA is headquartered in Omaha, Nebraska. Farm Credit Services of Mid-America, ACA is headquartered in Louisville, Kentucky. Each association has about $12 billion in loans. Each association is about 40 times the size of Yankee. What has been their experience with loan volume growth?
FCS of America's loans grew by 16% in 2007 and had a compound annual growth rate (CAGR) of 13% over the past 5 years. FCS of Mid-America's loans grew by similar amounts: 17% in 2007 and a 5-year CAGR of 12%. (Source: calculated from information on FCA's web site.)
The Farm Credit System as a whole had $143 billion in loans at the end of 2007. The overall System loan growth rate was 16% in 2007, with a 5-year CAGR of 10%. (Source: calculated from the System's Annual Information Statement.)
These loan growth rates are slightly on the high side, and are cause for reflection. But one reason that I am not overly concerned is that loan quality has improved considerably in the past 5 years and is currently at a high level. High risk loans as a percent of loans were as follows (12/31/02 -> 12/31/07):
FCS of America: 0.9% -> 0.3%
FCS of Mid-America: 1.1% -> 0.5%
Farm Credit System: 1.3% -> 0.4%
For reference, we consider 2% or less to be the standard for this ratio. Yankee's numbers were 0.8% -> 0.2%.
