Hat in Hand, Farm Credit begs for a bailout

It was a dubious distinction. The Farm Credit System, a network of 37 banks and 708 credit associations that is the largest single lender to American farmers, has joined the ranks of Chrysler and Lockheed in pleading for a federal bailout to save it from collapse. FCS officials last week went before Congress and in dire tones declared that the system needs $6 billion in federal aid to stay afloat. Said Ray Moss Tucker, a Kentucky dairy farmer and the group’s chief spokesman: “Our request for assistance is one of the most difficult decisions we have ever made. But we have no choice.”

The system faces profound troubles. The group’s banks and associations hold $70.7 billion in farm loans, about one-third of the total U.S. agricultural debt. Problem loans total $13 billion, and the system’s 37 banks posted a deficit of $522 million in the third quarter. They may lose $2.5 billion in the fourth quarter. The FCS has not been in the red since the 1930s.

The chief cause of the current crisis is what Tucker calls “some of the steepest drops in land values ever.” In just the past year, farm real estate values plummeted $100 billion partly because large food surpluses and depressed crop prices have made agriculture less attractive. Lower land prices have been devastating to the FCS because most of its loans are real estate mortgages, in which collateral is now greatly eroded.

Although the FCS is regulated by an independent Government agency, the Farm Credit Administration, it is not federally financed. Instead, the farmer- owned system raises money by selling securities to the public. About $100 billion worth of bonds and notes are sold each year. Recently investor confidence has deteriorated, and the market value of Farm Credit bonds has declined by more than $1.25 billion since mid-July.

The plea for a bailout puts the Administration in a difficult situation. Such action would violate Reagan’s free-market philosophy and could open the door to other federal-aid requests. But farmers have plenty of political clout, and troubles in farm credit could spread to other parts of the financial system. In congressional testimony last week, Agriculture Under Secretary Frank Naylor stopped short of proposing, as some White House advisers have suggested to the President, that the Treasury extend a $3 billion line of credit to the FCS. Instead, Naylor said that the system should use the surplus funds of its healthier lenders to assist its beleaguered banks and associations. Naylor added that the entire system should be more closely regulated. Once those measures are taken, the Administration might consider a bailout.