Charles B. Dodson

Explaining county‐level variability in farm service agency farm loan programs

USDA direct and guaranteed farm loan programs exhibit significant geographical variation in lending activity. County‐level estimations made using Tobit procedures indicate that use of Farm Service Agency (FSA) farm loan programs is greater in counties with lower per capita income and regions experiencing greater farm financial stress. Use of direct FSA loan programs was lower in counties with fewer private‐sector lenders. Guarantee loan program usage was found to decline when commercial agricultural lenders are absent from the county. FSA loan programs were more highly utilized in counties with an FSA loan service center and in states receiving greater FSA farm loan funding in past years.

Research on USDA farm credit programs: past, present, and future

Federal farm credit programs currently administered by the USDA were initiated in the early 1900s to help the farm sector cope with natural disasters, and these programs have continued to evolve. There has been a rich history of research analyzing USDA farm credit programs and the effects they have had on farmers, ranchers, and credit markets. This paper highlights past research and offers a view of the future direction of research on federal farm credit programs.

Competition in farm credit markets: identifying market segments served by the farm credit system and commercial banks

Agricultural credit markets are dominated by two institutional retail lender groups, the cooperative Farm Credit System (FCS) and commercial banks. Analysis of farm loans made over the 1991S1993 and 2001S2002 periods indicates that FCS lenders were more likely to serve full‐time commercial farmers and farmers located in regions with less competitive credit markets. In contrast, commercial banks were more likely to serve small, part‐time, and hobby farmers. This segmentation of farm credit markets is consistent with federal regulations requiring the FCS to provide credit to “bona fide” farmers with a basis for credit.

Bank size, lending paradigms, and usage of Farm Service Agency's guaranteed loan programs

Purpose - – An established paradigm in small business lending is segmented by bank size with large banks more likely to lend to large informationally transparent firms while small banks are more likely to lend to small informationally opaque firms. In light of banking consolidation, this market segmentation can have implications for credit availability. Federal loan guarantees, such as those provided by USDAs Farm Service Agency (FSA) may reduce the risks of lending to informationally opaque firms thereby mitigating the impacts of the bank size lending paradigm. This paper aims to discuss these issues. Design/methodology/approach - – This analysis utilized a binomial logit procedure to determine if there was any empirical evidence that smaller community banks served a unique clientele of farmers when making FSA-guaranteed loans. The analysis relied on a unique data set which incorporated detailed data on farm businesses receiving FSA-guaranteed loans, loan characteristics, as well as information about the originating bank and characteristics of the local credit markets. Findings - – Results were consistent with the bank size lending paradigm with smaller banks being less likely to engage in fixed-asset lending, and more likely to serve a riskier and less established clientele when making guaranteed loans. Research limitations/implications - – Data limitations did not permit detailed analysis of banks larger than

A triple hurdle model of US commercial bank use of guaranteed operating loans and interest assistance

250 million in total assets nor for consideration of non-bank lenders. An expansion by these lender groups into serving more informationally opaque borrowers could mitigate any adverse impacts arising from fewer small community banks. Practical implications - – The results suggested that Federal guarantees do not completely eliminate the relative informational advantages of large and small size banks. And, continued bank consolidation, such that there are fewer small community banks, could result in less credit availability among smaller, less creditworthy farm businesses. Social implications - – While FSA guarantees may not enhance a large banks propensity to serve informationally opaque farm borrowers, they may enhance the ability of smaller community banks to serve groups specifically targeted through FSA lending programs; the provision of credit to family farmers who, despite being creditworthy, are unable to obtain credit at reasonable rates and terms. Originality/value - – The analysis examines relationship between bank size and the use of FSA guarantees using a unique data set which incorporated information on FSA-guaranteed loans, farm financial characteristics, along with characteristics of commercial banks which participated in the FSA-guarantee program.

Farm and lender structural change: implications for federal credit

Purpose - The purpose of this paper is to estimate a three-equation model of US commercial bank usage of the Farm Service Agencys (FSA) guaranteed operating loan and interest assistance programs. Also, to identify the key farm and banking variables that affect the decision to use loan guarantees and the volume of loans with interest assistance. Design/methodology/approach - A triple hurdle, three-equation system is estimated to model three decisions: to participate in the FSA operating loan program; whether to use interest assistance given the decision to participate in the operating loan program; and then the degree of participation in the interest assistance program. Statistical selection is modeled. Data on almost all commercial banks in the USA from 1995 to 2003 are used in the estimation sample. Findings - Statistical selection is statistically significant so selection must be included in the models. Variables reflecting state-level characteristics such as farm debt servicing ratio, individual bank loan-to-asset ratio, bank size and the general guaranteed loan and interest assistance environment are significant in all three equations. Intensity of interest assistance use varies markedly across states. Originality/value - The interest assistance program has high subsidy costs and is an important source of support for financially marginal farmers. Scant prior research has investigated this program. The present study also shows that modeling interest assistance usage must be embedded in a larger model to give a complete specification.

Characteristics of borrowers likely to benefit from loan modifications

Purpose - The purpose of this paper is to examine changes in the structures of US farms and lenders and identify prospective implications for federal credit. Design/methodology/approach - Data from US farm operations for 1996-2014 were adjusted to 2014 values using commodity price indices. Farm size groups were constructed by value of farm production to analyze changes in farm numbers, production, assets, debt, leverage, liquidity, profitability, land tenure, commodity type, contract production, organization type, and use of Farm Service Agency (FSA) direct and guaranteed loans by farm size. Bank, Farm Credit System (FCS), and FSA data from 1996 to 2015 were adjusted to 2014 values. Lender size groups were constructed to analyze changes in bank and association numbers, farm loans, and use of FSA guaranteed loans by lender size. Findings - The greatest consolidation has been by farms with over

Modeling duration of FSA operating and farm ownership loan guarantees

2 million in production. More farm debt is held by large, complex organizations, frequently with multiple operators, more variable income, and greater reliance on production contracts and operating and nonreal estate credit. Large farms have greater leverage, are more profitable, and have a larger share of household income from the farm. Banks and FCS institutions are fewer and larger, yet smaller institutions use FSA guarantees to a greater extent. Larger farms tend to be more reliant on both direct and guaranteed FSA loans and are likely to become more dependent on FSA credit. Originality/value - Changing farm and lender structure together with softening farm income may require FSA farm loan program changes to meet any increase in loan demand. Policy alternatives are provided to meet changing demand for farm credit.

FSA farm loan repayment under economic recession and drought conditions: evidence from U.S. southeastern and midwestern farms

Purpose The purpose of this paper is to identify the characteristics of borrowers likely to benefit from loan modifications (restructuring) which includes concessions provided to the borrower from the lender. Design/methodology/approach Data were drawn from the US Department of Agriculture Farm Service Agency (FSA) for borrowers who had received an operating loan modification during 2005-2010. A logistic regression model is estimated to identify the characteristics associated with the likelihood of a borrower paying the modified loan as agreed or receiving a subsequent loan modification within seven years. Explanatory variables included financial condition, type and year of loan modification, farm type, organizational type, borrower demographics, and region. Findings Loans requiring more complex loan modifications and borrowers with previous loan restructuring, larger farms, little equity in loan collateral, little or no capital, and/or little to no liquidity are less likely to perform following loan restructuring, which could suggest a possible futility in providing concessions to these types of borrowers. Many of these borrowers ended up having a subsequent restructure within a short period of time. Most of the regional variability in loan performance appears to have been a result of land values and commodity prices and not jurisdictional laws. Originality/value FSA has followed a policy of providing loan modifications to the borrowers experiencing repayment problems for more than 25 years. Though farm financial conditions have remained relatively strong through 2016, a continuation of the low farm incomes and declining farm real estate values could increase farm loan repayment problems in upcoming years and increase interest in farm loan modifications from both lenders and policymakers. FSA’s experience provides a rich data source to examine and provide a better understanding of the costs and benefits associated with loan modifications.

FARM SERVICE AGENCY CREDIT DELIVERY TO DIFFERENT CLASSES OF BORROWERS

Purpose - To identify determinants of feasible outcome events (expired with no loss, settled for loss, still performing) and time to event of Farm Service Agency (FSA) operating and farm ownership loan guarantees. Design/methodology/approach - Data on 19,126 FSA guaranteed loans, which were made by various lenders to farmers who have limited ability to obtain loans from normal sources without the Federal guarantee, were collected. Cox proportional hazards models for operating loans and farm ownership loans are estimated to identify borrower characteristics, loan characteristics, lender types, and farm and macroeconomic environment factors that influence guarantee outcomes. Findings - Loans with different characteristics (loan amount, loan term, lender type, region originated) and assistance programs (Beginning Farmer, Interest Assistance) have differing guarantee outcomes. Contemporaneous variables, in particular delinquency status, have a significant impact on guarantee outcomes. Research limitations/implications - All loans were originated in calendar years 2004 and 2005. Since farm ownership loans may have as long as 40 year terms, results are not as robust for farm ownership loans as for operating loans. Practical implications - Different loan characteristics and macroeconomic conditions significantly influence the occurrence of possible guarantee outcomes and time to the outcomes. Originality/value - Guaranteed loans are the primary method of government credit assistance to U.S. farm operators. Data on individual borrowers have been difficult to obtain for much of the life of the guaranteed program because loan applications are held privately. This study provides insight on how various factors drive guarantee performance which is useful to policy makers trying to increase guaranteed loan program efficiency.