Farm Credit: Past reviewed, future previewed

By MONETTE TAYLOR | South Central Texas

April 18, 2002 -- "What's our philosophy of this country? Do we want to promote agriculture and the growth of food so that we don't have to import food that is lesser quality food? They don't have the environmental laws in those other countries, so we have the best and safest food supply, but the federal government provides subsidies because the farmers would like to be profitable, just based on prices in the market place.

"That happens some years, but it hasn't happened recently," said Arnold Henson, Farm Credit Bank of Texas (FCBT) chief executive officer.

At the recent annual meeting of the Tenth Farm Credit District in San Antonio, Henson joined other executives, producers and stockholders from Texas, New Mexico, Alabama, Louisiana and Mississippi to access the 2001 financial results and plan for the future.

"What we're seeing is substantial loan growth in our district. We did over $1.2 billion of new business, last year. There's a lot of money being invested in real estate. There are, obviously, a lot of farmers coming to us looking to move their short term financing to long term," said Henson.

Although a regulator has certain capital restrictions on how much lending the banks can do, business remains strong, according to Henson.

"If business continues to grow the way it has, we just need to anticipate that with all that business, what the potential impact would be on our capital level," he added.

He said that FCBT has alternatives, such as participating with other lenders so FCBT doesn't have to capitalize the loans.

"There's a secondary market. We haven't used that, yet, because of our strong capital position in the past. There's a secondary market facility called Farmer Mac for agricultural loans. We could sell loans there to get them off our books so that we wouldn't have to capitalize. So, we have options to deal with it.

"I just don't want our associations to wait until it is a problem and look up and say, 'Oh, we need to start doing something about this,'" said Henson.

The 10th district is composed of the Austin-headquartered FCBT and 22 local credit cooperatives and is the largest rural financing organization serving the five-state region, according to FCBT. Henson said there are about 140 branch offices. Fewer than in years past, due to consolidation, and not in every small town, due to justification of services, he said.

"We thought that business would slow down, last year, but it slowed down about a month (after Sept. 11) and then it started picking back up. The first two months of this year, 2002, we've done double the new business we did in January and February, last year," said Henson.

"It's very difficult to make a profit in agriculture, especially, if you have a lot of debt. Usually, in times like this when we're anticipating interest rates will began to rise, producers that have financed their operations, short term, because short-term money is much cheaper, are beginning to say, 'Ok, it looks like interest rates are going up, so I want to move from short-term financing to long-term financing,'" he added.

"If they have equity in their land, they come to the Federal Land Credit Associations and get the long term mortgage loans."

He said that some commercial banks seem to be moving toward "lightening up" on their agricultural loans, but that is a normal cycle he's seen in his career with FCBT .

"Another thing is that there's a lot of people in the city that, I think, are beginning to plan for retirement, so they're moving out to the country and they're buying "ranchettes," for example, and running maybe 50 head of cattle, and have some agricultural income, but they work in the city. They spend all the free time they can out in the country to reduce the stress.

"I think there's a lot of people like me -- baby-boomers -- so to speak, that are in major metropolitan areas that are beginning to think about, 'Well, you know, in the next 10 to 15 years, I can buy the place now, and potentially, have the place paid for by the time they actually retire,'" said Henson.

While the bank used to dictate to the associations, Henson said the associations are now responsible for calling their own shots and making the loans, a change Henson encouraged and supported. While FCBT is ultimately responsible for the loans, the individual associations are free to make decisions within the guidelines of FCBT.

In closing, Henson had comments on the Farm Bill and U.S. producers.

"As a country, we have to decide if we want to continue to have a Farm Bill and support agriculture, so that we don't end up being a net importer of food for our people. Another point I'd like to make is that people talk about farm subsidies and subsidizing the farmer. I think another way to look at it is that the farm program subsidizes you and me as the consumer. We've got the cheapest food and the best of it, so I think we need to keep our farms and ranches in business."