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ICBA Chairman Testifies, Says Changes Must Be Made to USDA’s Farm & Business Guaranteed Loan Programs

Washington, D.C. (May 10, 2012)—Jeff Gerhart, chairman of the Independent Community Bankers of America (ICBA) and chairman of the Bank of Newman Grove in Neb., testified today before the House Agriculture Committee’s Subcommittee on Department Operations, Oversight and Credit.   During his testimony, Gerhart urged the committee to make changes to the USDA’s guaranteed farm and business loan programs as part of drafting the new farm bill to replace the current bill, which expires Sept. 30.  He also urged the committee to retain current funding levels for the crop insurance program to continue a strong farm safety net.

“Like most community banks, our goal is to help keep family farmers passing their farm on to the next generation and in turn keep our rural communities vibrant,” Gerhart said in his testimony.  “In fact, community banks under $1 billion in assets extend about 56 percent of farm operating loans and 62 percent of farm real estate loans from the banking sector.” 
Gerhart went on to provide insight on the financial strength of the farm economy from a lender’s perspective. “Farmers have been paying down debt and taking steps to become more efficient, which should better prepare them for a successful future should financial stress arise,” Gerhart said.  He also pointed out that while commodity prices and farm incomes are historically high, so are production expenses.  He noted the cyclical nature of agriculture, the uncontrollable risks of adverse weather, unknown commodity prices and rising costs of production require a continued and robust farm safety net.

“Maintaining crop insurance funding is an extremely important aspect of the farm safety net,” he said.  “And while crop insurance is not part of the credit title, it allows lenders to extend credit.  It gives assurance producers will repay loans in the event of bad weather or falling prices.  Crop insurance is a good risk-management tool for the farmer.” 

During his testimony, Gerhart offered several recommendations to enhance the USDA’s guaranteed loan programs: 

Farm Loan Recommendations:

  • Remove limits on the number of years producers can obtain guaranteed farm real estate loans.  The program is now self-funding and there is no reason to limit eligibility, particularly since community banks provide the financing.
  • Significantly increase the loan limit (size).  Gerhart noted that at today’s farmland prices, a 160-acre tract of land sold near his town exceeded the USDA’s loan limit and that the small tract of land would not be a viable family farm, even at twice the size.
  • Increase the volume or amount of dollars extended.  This would be necessitated by higher loan sizes, but is also warranted particularly with the real estate loan program since it is self-funded.  Gerhart suggested a pilot program in which producers who wanted larger guaranteed operating loans could pay higher fees to offset potential costs.
  • Expand eligibility for guaranteed real estate loans.  These loans should be available if producers either own or operate a family farm as this would allow children to purchase the farm from parents. 

USDA Business & Industry (B&I) Loan Recommendations:

  • Adjust how subsidy rate is calculated.  Gerhart suggested prohibiting loss calculations on very large loans no longer guaranteed by the USDA; limiting the time period for loss calculations to 20 years to reflect how the program is currently operated; and increasing loan volume in categories that have no history of losses and utilizing the resulting fee income to make more loans in other categories.