The nation's agricultural situation may turn out to be worse than it was during the Depression, particularly if no one acts swiftly to keep the farm credit system afloat, U.S. Trade Representative Clayton Yeutter said yesterday.
"We're going to have to deal with the agricultural credit problem or we're going to have the darnedest exodus from agriculture this winter that the country has ever had," Yeutter said. The situation could be worse than in the 1930s, because much more capital is tied up in agriculture now, he said.
Earlier this week, the Farm Credit Administration issued a report showing a rapid worsening during the second quarter of the position of the Farm Credit System, which it oversees. The FCS is a network of cooperative banks that lend money in rural areas for land purchases and farm operating loans.
"A pattern of increasing loan charge-offs, increasing nonaccrual loans, especially in the federal land banks , and declining net income dominated results for the April-June quarter," the report said.
Collectively, the system had slightly more problem loans than it had capital. Moreover, because of the system's decentralized nature, it is difficult for the system to use resources in healthy areas to underwrite losses elsewhere.
During the second quarter, $246 million worth of bad loans were written off compared, with only $61 million in the first quarter, the report said. Net income fell from $137 million in the first quarter to $23 million in the second.
At the system's 12 federal land banks, nonaccrual loans -- those on which interest is not being paid -- "grew rapidly to $1.854 billion on June 30 from $1.303 billion on March 31 and $0.547 billion on Dec. 31," the report continued. The nonaccrual loans were included in a larger category of nonperforming loans -- those whose terms and conditions borrowers are failing to meet. These loans totaled $5.442 billion, or 10.7 percent of all land bank loans.
The total of nonperforming loans at the land banks was almost as large as the banks' total net worth of $6.029 billion.
The situation at the system's 12 federal intermediate credit banks -- which advance money to hundreds of production credit associations that, in turn, lend it to farmers -- was worse. Nearly one-fourth of FICB loans, or $3.829 billion worth, were nonperforming, while the combined net worth of the banks was only $2.016 billion.
The production credit associations also had $2.080 billion worth of nonperforming loans, and the banks for cooperatives had another $0.550 billion worth.
Some of the banks and production credit associations were in much more serious difficulty than others, particularly those in the Omaha and Spokane, Wash., districts, according to the report.
The FCA report also noted that all the credit problems do not lie within the Farm Credit System. "More agricultural banks failed in the second quarter of 1985 than in any quarter since the Depression," it said. "Nearly two-thirds (21) of the 32 banks that failed during the quarter were classified as agricultural banks. For the 12 months ended June 30, 1985, 56 of 87 failed banks were agriculturally oriented."
A commerical bank is classified as an agricultural bank when one-fourth or more of its loans are for agricultural purposes.