U.S. GOVERNMENT PUBLISHING OFFICE

23–591 PDF WASHINGTON : 2018

S. HRG. 114–643 

THE FARM CREDIT SYSTEM: 

OVERSIGHT AND OVERLOOK OF 

THE CURRENT ECONOMIC CLIMATE 

HEARING 

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

MAY 19, 2016 

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry 

( 

Available via the World Wide Web: http://www.agriculture.senate.gov 

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COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY 

PAT ROBERTS, Kansas, Chairman 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

JOHN BOOZMAN, Arkansas 

JOHN HOEVEN, North Dakota 

DAVID PERDUE, Georgia 

JONI ERNST, Iowa 

THOM TILLIS, North Carolina 

BEN SASSE, Nebraska 

CHARLES GRASSLEY, Iowa 

JOHN THUNE, South Dakota 

DEBBIE STABENOW, Michigan 

PATRICK J. LEAHY, Vermont 

SHERROD BROWN, Ohio 

AMY KLOBUCHAR, Minnesota 

MICHAEL BENNET, Colorado 

KIRSTEN GILLIBRAND, New York 

JOE DONNELLY, Indiana 

HEIDI HEITKAMP, North Dakota 

ROBERT P. CASEY, JR., Pennsylvania 

JOEL T. LEFTWICH, MAJORITY STAFF DIRECTOR

ANNE C. HAZLETT, MAJORITY CHIEF COUNSEL

JESSICA L. WILLIAMS, CHIEF CLERK

JOSEPH A. SHULTZ, MINORITY STAFF DIRECTOR

(II) 

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(III) 

C O N T E N T S 

Page 

HEARING(S): 

The Farm Credit System: Oversight and Overlook of the Current Economic 

Climate .................................................................................................................. 1 

Thursday, May 19, 2016 

STATEMENTS PRESENTED BY SENATORS 

Roberts, Hon. Pat, U.S. Senator from the State of Kansas, Chairman, Committee on Agriculture, Nutrition, and Forestry ................................................. 1 

Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan ..................... 3 

Thune, Hon. John, U.S. Senator from the State of South Dakota ...................... 4 

WITNESSES 

Panel I 

Spearman, Hon. Ken, Chairman, Farm Credit Administration Board, McLean, 

VA .......................................................................................................................... 5 

Tonsager, Hon. Dallas, Member, Farm Credit Administration Board, Chairman, Farm Credit Insurance System Corporation Board, McLean, VA .......... 7 

Hall, Hon. Jeffery, Member, Farm Credit Administration Board, McLean, 

VA .......................................................................................................................... 8 

Panel II 

Barker, Verlin (Gus) J., President and Chief Executive Officer, Community 

Bank of Oelwein, Oelwein, IA ............................................................................. 27 

Stark, Doug, President and Chief Executive Officer, Farm Credit Services 

of America & Frontier Farm Credit, Omaha, NE ............................................. 29 

Welder, Jed, Owner, Trinity Farms, Greenville, MI ............................................. 31 

Wolfe, Leonard, President and Chief Executive Officer, and Chairman of 

the Board, United Bank and Trust, Marysville, KS ......................................... 25 

APPENDIX 

PREPARED STATEMENTS: 

Stabenow, Hon. Debbie: 

Transcript of floor statements by Hon. Patrick J. Leahy and Hon. Richard 

Lugar for submission into the record. ......................................................... 46 

Leahy, Hon. Patrick J. ..................................................................................... 51 

Thune, Hon. John ............................................................................................. 53 

Barker, Verlin (Gus) J. ..................................................................................... 56 

Hall, Hon. Jeffery ............................................................................................. 70 

Spearman, Hon. Ken ........................................................................................ 73 

Stark, Doug ....................................................................................................... 84 

Tonsager, Hon. Dallas ...................................................................................... 98 

Welder, Jed ....................................................................................................... 101 

Wolfe, Leonard .................................................................................................. 103 

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IV 

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

Thune, Hon. John: 

Study: Farm Income Plummets in 2015, The Daily Republic ....................... 116 

Stark, Doug: 

American Farmland Trust ............................................................................... 120 

Clemson University .......................................................................................... 122 

Drake University .............................................................................................. 124 

Empire State Council of Agricultural Organization, Inc. .............................. 125 

Farm Credit Agriculture Coilition Letter ....................................................... 127 

Farmer Veteran Coalition ................................................................................ 129 

FreshFarm, prepared statement ..................................................................... 131 

Frontier Communications, prepared statement ............................................. 132 

Iowa State University ...................................................................................... 133 

Land for Good, prepared statement ................................................................ 135 

Local Food Strategies, LLC, prepared statment ............................................ 137 

Market Maker, prepared statement ................................................................ 139 

Matson Consulting, prepared statement ........................................................ 141 

Morse Marketing Connections, prepared statement ...................................... 142 

National Rural Electric Cooperative Association ........................................... 144 

National Rural Water Association .................................................................. 145 

National Cooperative Business Association, CLUSA International ............. 147 

National Council of Farmer Cooperatives ...................................................... 149 

NTCA, The Rural Broadband Association ...................................................... 151 

Originz, LLC, prepared statement .................................................................. 153 

Sustainable Agricultural Education (SAGE), prepared statement ............... 154 

Southern Sustainable Agriculture Working Group ....................................... 156 

The Federation of Southern Cooperatives ...................................................... 158 

The Ohio State University ............................................................................... 160 

The Rural Advancement Foundation International ...................................... 161 

University of Arkansas .................................................................................... 163 

Wallace Center, prepared statement .............................................................. 165 

Western Telephone Association, prepared statement .................................... 167 

Wholesome Wave, prepared statement ........................................................... 172 

QUESTION AND ANSWER: 

Barker, Verlin (Gus) J.: 

Written response to questions from Hon. Pat Roberts .................................. 172 

Written response to questions from Hon. John Thune .................................. 173 

Written response to questions from Hon. Robert Casey, Jr. ......................... 175 

Hall, Hon. Jeffery: 

Written response to questions from Hon. John Thune .................................. 177 

Spearman, Hon. Ken: 

Written response to questions from Hon. Pat Roberts .................................. 179 

Written response to questions from Hon. Thom Tillis .................................. 182 

Written response to questions from Hon. Charles Grassley ......................... 185 

Written response to questions from Hon. John Thune .................................. 187 

Written response to questions from Hon. Heidi Heitkamp ........................... 189 

Written response to questions from Hon. Robert Casey, Jr. ......................... 191 

Stark, Doug: 

Written response to questions from Hon. Pat Roberts .................................. 194 

Written response to questions from Hon. John Thune .................................. 195 

Written response to questions from Hon. Robert Casey, Jr. ......................... 198 

Tonsager, Hon. Dallas: 

Written response to questions from Hon. John Thune .................................. 201 

Written response to questions from Hon. Robert Casey, Jr. ......................... 203 

Welder, Jed: 

Written response to questions from Hon. Pat Roberts .................................. 203 

Written response to questions from Hon. John Thune .................................. 203 

Written response to questions from Hon. Robert Casey, Jr. ......................... 204 

Wolfe, Leonard: 

Written response to questions from Hon. Pat Roberts .................................. 205 

Written response to questions from Hon. John Thune .................................. 206 

Written response to questions from Hon. Patrick J. Leahy .......................... 206 

Written response to questions from Hon. Robert Casey, Jr. ......................... 208 

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(1) 

THE FARM CREDIT SYSTEM: 

OVERSIGHT AND OVERLOOK OF 

THE CURRENT ECONOMIC CLIMATE 

Thursday, May 19, 2016 

UNITED STATES SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, 

Washington, DC 

The committee met, pursuant to notice, at 10:17 a.m., in room 

328A, Russell Senate Office Building, and in room 328A, Hon. Pat 

Roberts, Chairman of the committee, presiding. 

Present or submitting a statement: Senators Roberts, Boozman, 

Ernst, Tillis, Sasse, Grassley, Thune, Stabenow, Brown, Klobuchar, 

Bennet, Gillibrand, Donnelly, Heitkamp, and Casey. 

STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE 

STATE OF KANSAS, CHAIRMAN, U.S. COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY 

Chairman ROBERTS. I call this hearing of the Senate Committee 

on Agriculture, Nutrition, and Forestry to order. Thank you all for 

coming. 

Today’s hearing will examine the overall climate of credit in 

rural America, the health of ag lending from both the commercial 

bank and the Farm Credit System perspectives, and what impact 

the current credit environment is having on our nation’s farms. We 

will also examine whether the Farm Credit Administration is exercising appropriate oversight of the Farm Credit System. 

Farmers and ranchers all across the country are experiencing difficult economic conditions as farm sector profitability is forecast to 

decline for the third straight year. Over the past three years alone, 

net farm income is expected to decline by 56 percent. As our nation’s farmers and rural communities continue to deal with low 

commodity prices and always elevated input costs, access to affordable credit in rural America is absolutely crucial. 

The Spring 2016 Agriculture Lenders Survey released by Kansas 

State University’s Department of Agriculture Economics expects 

the credit environment for farmers to remain difficult for at least 

a few more years. Lenders indicate that demand for operating 

loans will continue to remain high as liquidity and cash flow are 

problematic for many farmers. Further, non-performing loans have 

increased and are expected to continue on this unfortunate trajectory due to low commodity prices. 

In addition to the Lenders Survey, the Federal Reserve Bank of 

Kansas City painted a similarly bleak projection of the farm sector 

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credit conditions for the first quarter of 2016. Lenders note an increasing share of farmers carrying over outstanding debt from previous years, with an increased demand for loans and weakening repayment rates. 

Now, for farmers, every year—every year—is a high-stakes bet as 

they put their confidence in their crops, livestock, and the business 

decisions they make all throughout the year. While farmers continue to manage their risk through a period of low commodity 

prices and stubbornly high input prices, it is vitally important we 

begin discussions regarding next year’s borrowing decisions. There 

is no doubt that today’s discussion is timely, especially considering 

it has been just under a decade, ten years, since we have had representatives from either the banking industry or the Farm Credit 

System before this committee to discuss some of the issues we will 

cover today. 

Rural America relies on a network of credit providers consisting 

of the private sector and the Farm Credit System. Created under 

the Federal Farm Loan Act of 1916, the Farm Credit System is a 

nationwide system of privately owned cooperative lenders statutorily required to provide farmers and other rural borrowers with 

a permanent and affordable source of credit. 

Currently, the Farm Credit System is comprised of 74 agricultural credit associations and four regional banks which provide the 

ag credit associations with funds to make loans to producers and 

other retail borrowers. The agency tasked with regulating the 

Farm Credit System is the Farm Credit System Administration, or 

the FCA. The Farm Credit Administration is an independent agency comprised of a three-member Board nominated by the President, 

and as we all know on this committee, confirmed by the Senate 

through our committee. 

Like the banking industry, the Farm Credit System is not a lender of last resort. The lender of last resort for farmers who are otherwise unable to secure private financing is the Department of Agriculture’s Farm Service Agency. Our commercial banks and the 

Farm Credit System often relies on USDA farm loan guarantees to 

make loans when borrowers are less creditworthy. 

Now, to date, the Farm Service Agency has seen a 21 percent— 

that is 21 percent—increase in farm loans as compared to last year, 

a further troubling indication of a struggling agricultural economy. 

Obviously, much has changed since Congress established the Farm 

Credit System a hundred years ago. One thing that has not 

changed, however, is the importance of providing farmers and other 

rural borrowers with easily accessible and affordable credit. 

Now, I along with a few of my colleagues on the Ag Committee 

here remember very well the difficult times with the farm economy 

during the 1980s. No one—no one—wants to see a repeat of those 

dark days. I look forward to hearing from our two distinguished 

panels of witnesses regarding the landscape of the current economic conditions in farm country, what is working or needs improvement from a legislative perspective to protect the financial 

well-being of our farmers and our rural communities. 

Now, before we hear from our witnesses, I recognize our distinguished Ranking Member, Senator Stabenow, for any of her opening remarks. 

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STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR 

FROM THE STATE OF MICHIGAN 

Senator STABENOW. Well, thank you very much, Mr. Chairman, 

and thank you to our witnesses as well as the leaders from the 

Farm Credit Administration. It is great to see all of you, and Mr. 

Chairman, this is a very important hearing, so thank you for holding it. 

I want to especially welcome Mr. Tonsager and Mr. Hall, whose 

nominations this committee unanimously approved last year. It is 

wonderful to see you again. 

I also want to give a warm welcome to Jed Welder, who will be 

on our second panel. Jed served in both the United States Marine 

Corps and the U.S. Army, and he and his wife, Milka, are now the 

proud owners of Trinity Farms in Greenville, Michigan. It is great 

to have you here today, and thank you for your service to our country and for taking time away from planting corn to join us and tell 

your story. 

As many of us know, a hundred years ago, as the Chairman said, 

in 1916, Congress passed the Federal Farm Loan Act to address 

the serious problems facing our farmers and agricultural producers, 

a problem that threatened the long-term success of our rural economy. At that time, obtaining reliable credit was often unaffordable 

in most rural areas. Many lenders avoided farm loans altogether 

because the inherent risks of weather and price swings made lending to farmers unappealing. As a result, Congress established the 

Farm Credit System to fill the gap in credit and provide American 

farmers and producers the financing they needed to expand in good 

times and to weather the bad times. 

A hundred years later, the Farm Credit System continues to ensure that producers of all types and sizes have adequate and reliable access to credit. In fact, farm credit lenders nationally provide 

more than $200 billion in loans to rural America. In my home State 

of Michigan, GreenStone Farm Credit provides more than $5 billion in loans to producers, including to more than 17,500 small, 

new, and beginning farmers that need access to capital. As we will 

hear from Mr. Welder, it was exactly this type of support that 

helped him secure land and create a new life for himself and his 

family after his military service. 

However, as we look ahead to the next several years, we know 

that we are entering a period of low commodity prices, especially 

compared to what we have seen in the past few years, which will 

make it more challenging for farmers to make ends meet. This year 

alone, net farm income is projected to decline for the third consecutive year, a drop of 56 percent from 2013, and thank goodness, Mr. 

Chairman, we did the farm bill. 

To weather this downturn, American farmers will continue to 

rely on commercial banks, USDA, and our Farm Credit System to 

provide the necessary short, medium, and long-term financing that 

will allow American agriculture to continue and prosper. 

I am pleased that we will also be hearing today from lenders on 

our second panel who play an important role in providing credit 

throughout the entire food supply chain. 

I would also like to briefly mention the longstanding support of 

the Farm Credit System by Senator Pat Leahy. I understand that 

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he is in an Appropriations Committee meeting and will be unable 

to attend today. But, Mr. Chairman, as Chair of the committee during the 1990s when many important reforms were made to the 

Farm Credit System, Senator Leahy has asked me to submit for 

the record a transcript of his and then-Ranking Member Lugar’s 

floor statements during the consideration of one of those major 

changes, and I would ask the Chair to enter this into the record. 

[The information of Senator Leahy can be found on page 46 in 

the appendix.] 

Chairman ROBERTS. Without objection, it is so ordered. 

Senator STABENOW. Thank you, Mr. Chairman. 

Senator THUNE. Mr. Chairman, could I welcome a South Dakota 

witness? 

Chairman ROBERTS. I would be delighted to have you do that. 

Why do you not just go right ahead. 

STATEMENT OF HON. JOHN THUNE, U.S. SENATOR FROM THE 

STATE OF SOUTH DAKOTA 

Senator THUNE. Dallas Tonsager has a farming operation with 

his brother in northeastern South Dakota. He has also served as 

Under Secretary for Rural Development at USDA, someone who 

has a great and distinguished career in public service here. Thank 

you for being here and welcome to the committee. Give your family 

our best, all right. Thanks, Dallas. 

Chairman ROBERTS. Thank you, Senator. 

Today, I am pleased to welcome our first panel of witnesses who 

represent the Farm Credit Administration, led by our Chairman 

and CEO, the Honorable Kenneth Spearman. Mr. Chairman, we 

appreciate your joining us while you recover from a medical procedure, note that you are under doctor’s orders to wear your chapeau. 

I think that is the proper term. As I told you in the back room, I 

was going to give you a black cowboy hat, a ‘‘caboy’’ hat, as we say 

in Dodge City, but we do not want this to be a hearing with black 

hats, so—— 

[Laughter.] 

Chairman ROBERTS. But, you are permitted and you are looking 

good. 

Mr. Spearman, appointed to serve on the Farm Credit System 

Board by President Obama on October 13, 2009, has an extensive 

background working in finance, agriculture cooperatives. From 

1980 to 1991, Mr. Spearman served as the controller of a $100 million citrus co-op in Orlando, where he handled financial management, reporting, and supervision of staff accounts. After serving in 

this capacity, Mr. Spearman went on to become Director of Internal 

Audit for Florida’s Natural Growers, and then served as an outside 

director on the Ag First Farm Credit Bank Board until his appointment to the Farm Credit Administration Board. 

Mr. Spearman is also a U.S. Army and Vietnam veteran. We 

thank you, sir, for your service. 

Mr. Spearman, thank you for your service to our country. I look 

forward to hearing your testimony today after I introduce your fellow Board members. 

Our next witness on this panel is the Honorable Dallas Tonsager, 

already introduced by my distinguished colleague. Mr. Tonsager 

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brings decades of experience working on issues concerning farm 

credit, rural America, and is now on his second stint serving on the 

Board of the Farm Credit Administration. 

In addition to being a Board member of the Farm Credit Administration, Mr. Tonsager serves as Chairman of the Board of the 

Farm Credit System Insurance Corporation, which is responsible 

for insuring the timely payments of principal and interest on obligations issued on behalf of the Farm Credit Banks. Before being 

nominated by President Obama to serve on the Farm Credit Administration Board, Mr. Tonsager served as USDA’s Under Secretary for Rural Development from 2009 through 2013, where he 

worked to expand broadband and other critical infrastructure 

projects all throughout rural America. 

Mr. Tonsager hails from South Dakota, where he grew up on a 

dairy farm. It is a pleasure to have you back before the committee, 

Dallas, and I look forward to your testimony. 

Our third witness on the panel is the Honorable Jeffery Hall. Mr. 

Hall was appointed to the Farm Credit Administration Board by 

President Obama on March 17, 2015. Prior to his appointment, Mr. 

Hall was President of an association management and consulting 

firm he co-founded in 2009. 

Before working in the private sector, Mr. Hall was the Kentucky 

State Executive Director for USDA’s Farm Service Agency, where 

he was responsible for farm program and farm loan program delivery and compliance, and was a scout for the University of Kentucky’s basketball team, as I understand. I made that up, so you 

can leave that out. 

[Laughter.] 

Chairman ROBERTS. Prior to his time at the Department, Mr. 

Hall served as an Assistant to the Dean of Agriculture at the University of Kentucky and previously served as a Senior Staff Member to our Majority Leader McConnell from 1988 to 1994. Altogether, he has enjoyed a 30-year career in ag policy. 

Jeffery, thank you so much for joining us today. 

I look forward to hearing all three of your testimonies today, asking you some questions about the state of the Farm Credit System. 

Mr. Spearman, why don’t you kick things off. 

STATEMENT OF HON. KENNETH A. SPEARMAN, CHAIRMAN, 

FARM CREDIT ADMINISTRATION BOARD, McLEAN, VIRGINIA 

Mr. SPEARMAN. Thank you, Mr. Chairman. 

Chairman Roberts and Ranking Member Stabenow and members 

of the committee, it is a privilege to appear before you today to report on the mission of the Farm Credit Administration. I have a 

written statement to submit for the record. 

President Obama appointed me to the FCA Board in October of 

2009 and designated me FCA Chairman and CEO in March of last 

year. I have the pleasure of serving on the Board with two very distinguished colleagues, Dallas Tonsager and Jeff Hall, whom you 

will hear from in a moment. 

FCA is an independent federal agency that regulates and examines the banks, associations, and related entities of the Farm Credit System, including Farmer Mac. Our responsibility is to ensure 

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that the System meets its Congressional mission to provide a dependable source of credit for agriculture and rural America. 

FCA was created by an Executive Order of President Franklin 

Roosevelt in 1933. During the agricultural credit crisis of the 

1980s, this committee restructured FCA, giving it regulatory and 

enforcement powers similar to those of other federal financial regulators. FCA is not an appropriated agency. We are funded primarily through assessments paid by System institutions. 

The Farm Credit System is the nation’s oldest government-sponsored enterprise. It is a nationwide network of borrower-owned cooperative financial institutions. Currently, the System includes 

four banks and 74 direct lending associations. The banks provide 

loan funds to associations, which in turn provide operating loans 

and long-term real estate loans to farmers, ranchers, and other eligible borrowers. One of the System’s banks also has the authority 

to lend to agricultural cooperatives and rural utilities. 

Farm Credit Banks and associations cannot take deposits. The 

System obtains loan funds by selling securities on the national and 

international money markets. The securities are not guaranteed by 

the federal government. 

The System is the only GSE that makes loans at the retail level. 

It was established to provide a dependable source of competitive 

credit to farmers, ranchers, and farm cooperatives. Its mission is 

to serve American agriculture in good times and bad. 

After several years of record farm income, the agricultural industry has entered a new period of lower profits. In 2016, net farm income is forecast to decline for the third straight year. Times like 

this underscore our nation’s need for dependable, affordable agricultural credit. Because Congress had the foresight to establish the 

Farm Credit System some 100 years ago, our farmers and ranchers 

have been able to provide abundant, affordable food and fiber to 

people at home and around the world. 

Of course, stress in the farm industry can also create stress for 

the Farm Credit System and we are already seeing signs of stress 

in a few institutions. However, I am happy to report that System 

banks and associations are fundamentally safe and sound, as is 

Farmer Mac. 

FCA is taking steps to make sure the System remains safe and 

sound. The Board recently finalized a rule that updates our capital 

regulations and aligns them with the Basel III accord. We continue 

to emphasize robust internal controls in all System institutions and 

to monitor for emerging risks. 

Regarding the System’s similar entity authority, we have taken 

steps to ensure that it uses this authority only for the purpose of 

mitigating risk, and, as always, if we find a transaction that is outside the limits and purpose of the law, we require the institution 

to take corrective action. 

We also emphasize mission fulfillment. The System must serve 

all eligible creditworthy potential borrowers regardless of race or 

gender and regardless of the commodities they produce or the size 

of their operations. We want to make sure the System also serves 

small organizations and operations that produce organic and valueadded foods for local markets. 

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Mr. Chairman, this concludes my opening statement. Thank you, 

and I will be happy to answer any questions. 

[The prepared statement of Mr. Spearman can be found on page 

73 in the appendix.] 

Chairman ROBERTS. Mr. Tonsager. 

STATEMENT OF HON. DALLAS P. TONSAGER, MEMBER, FARM 

CREDIT ADMINISTRATION BOARD, AND CHAIRMAN, FARM 

CREDIT SYSTEM INSURANCE CORPORATION BOARD, 

McLEAN, VIRGINIA 

Mr. TONSAGER. Chairman Roberts, Ranking Member Stabenow, 

and members of the committee, thank you for the opportunity to 

testify today. 

I am pleased to now be serving a second term on the Board of 

the Farm Credit Administration with my distinguished colleagues, 

Chairman Spearman and Board Member Hall. I have previously 

served on the FCA Board from 2004 to 2009. 

At the outset, I want the committee to know of my absolute commitment to the continued safety and soundness of the Farm Credit 

System as we navigate through the downward cycle in the agricultural economy. Rural America and the Farm Credit System are important to me, both in my role as an FCA Board member and in 

my personal connection to farming and rural America, as I was 

raised on a farm in South Dakota and was engaged in farming for 

over 40 years. 

The Farm Credit System, which is cooperatively owned by farmers and ranchers, was well positioned to persist through the 2008 

financial crisis. In fact, the System’s capital and liquidity positions, 

risk profile, stress testing capacity, and lending practices in the agriculture sector have all significantly strengthened over the last 

eight years. 

With the challenges now facing the agricultural economy, FCA’s 

oversight role and the Farm Credit System’s purpose to be there 

for agricultural producers and rural communities in bad times as 

well as good times are more critical than ever. I lived through the 

difficult years in agriculture in the 1980s and well understand the 

importance of the Farm Credit System to farmers and ranchers in 

such times. I have great confidence in the FCA’s ability to ensure 

that the Farm Credit System institutions remain a source of sound, 

adequate, and constructive credit to those farmers and ranchers 

struggling to keep their ag operations going and remain in their 

rural communities. 

In addition to my duties as a Farm Credit Administration Board 

member, I serve as Chairman of the Farm Credit System Insurance Corporation along with my colleagues on the FCA Board. Congress created the Insurance Corporation to ensure the timely payment of principal and interest on the debt issued by the Farm 

Credit System banks. Congress also gave the Insurance Corporation the responsibility to provide assistance to troubled Farm Credit System institutions and to act as a conservator or a receiver for 

failed System institutions. 

By law, the Insurance Fund must maintain a secure base 

amount equivalent to two percent of the adjusted insured obligations of the System banks, and there is currently $4.1 billion in the 

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Insurance Fund, an amount that is marginally under the base 

amount. This fund acts as a safety net for the farmer- and rancherowners of the Farm Credit System in addition to the protections afforded by the joint and several liabilities agreements of the System 

banks. 

That concludes my opening statement. Thank you to the committee, and I look forward to your questions. 

[The prepared statement of Mr. Tonsager can be found on page 

98 in the appendix.] 

Chairman ROBERTS. Mr. Hall. 

STATEMENT OF HON. JEFFERY S. HALL, MEMBER, FARM 

CREDIT ADMINISTRATION BOARD, McLEAN, VIRGINIA 

Mr. HALL. Thank you, Mr. Chairman, Ranking Member Stabenow, and members of the committee. My name is Jeff Hall, and it 

was just a little over a year ago I sat before this committee, and 

I appreciate your confidence in me in appointing me and I appreciate the chance to come back today as a Board member of the 

Farm Credit Administration. 

The Farm Credit Administration is an independent arm’s length 

regulator of the Farm Credit System and Farmer Mac. Our agency 

examines System institutions for safety and soundness and compliance with laws and regulations. FCA exercises increased oversight 

with institutions at a higher risk. 

The Farm Credit System was created to provide a permanent, reliable source of credit to U.S. agriculture. When Congress enacted 

the Federal Farm Loan Act in 1916, credit was not always available and affordable in some rural areas. Many lenders avoided 

farm loans due to the inherent production and price risk of agriculture. 

The foundation of the Farm Credit System is its cooperative 

structure. Agriculture has changed in many ways and will continue 

to change, but the guiding principles of the cooperative model continue to stand the test of time. Member ownership and governance 

are key ingredients of the System’s success. 

As Chairman Spearman has reported, the Farm Credit System 

is safe and sound. The health of the System today is due in no 

small part to the actions of this committee. During the agricultural 

credit crisis of the 1980s, Congress made some very important 

changes to the Farm Credit System that gave it the opportunity to 

emerge stronger and better able to serve rural America and meet 

its mission. 

As you well know, farm income is projected to decline for the 

third consecutive year. Virtually all sectors of commodity prices are 

lower than any time in the last five years. Farm debt continues to 

increase, and many farmers and ag businesses have been forced to 

draw from the equity they had built. Fortunately, agriculture has 

entered this down cycle from a position of strength, with historically low interest rates helping to hold down debt levels. 

There are challenges ahead and the Farm Credit System is well 

situated to remain a reliable source of credit. 

Chairman Roberts told me as I sat at this table a little over a 

year ago to get outside of Washington and go meet people in the 

System. I have prioritized my travel to meet with borrowers, assomw42035 on AGRINON012 with DISTILLER

9 

ciation boards, and employees who are dealing with these challenges on a daily basis. Also in my visits, I learn about the consequences of the rules and the regulations imposed by the Farm 

Credit Administration. My visits have helped me greatly in my role 

as a Board member. Without the input from the regulated community, my job would be much more difficult. I like to say, we will 

not always agree, but I will always listen. 

At our March Board meeting, the Farm Credit Administration 

Board approved a new capital rule which will require the System 

to hold on to more and higher quality capital. By raising the capital 

requirements, farmers’ investment in their associations is better 

protected from impairment. 

The Farm Credit Administration Board also adopted guidance to 

the System on the use of similar entity lending activity. I understand that reputation risk is a valid concern and adopting this 

guidance will increase the examination and reporting requirements. It gives FCA an added tool to monitor similar entity lending 

activity. It also gives us an indication whether additional guidance 

from this Board is necessary. 

Both the capital rule and the similar entity guidance are good examples of the additional focus on internal controls. From the beginning of my term, Chairman Spearman has made internal controls 

a stated priority. 

Modern agriculture and the financial service industry are more 

complex than ever. The Farm Credit Administration and the System will continue to strengthen the internal controls in order to 

maintain your confidence and carry on the legacy of service to 

American agriculture and rural communities. 

Thank you again for inviting me to testify. There are many challenges that face the System. Having been a Federal Land Bank 

borrower in the 1980s, I can say with confidence that the System 

is much better and much stronger than it was 30 years ago. I do 

not consider myself an advocate for the Farm Credit System. I do 

consider it my responsibility to ensure a safe and sound source of 

credit to eligible borrowers and owners of this cooperative. When 

the System is safe and strong, the agency is doing its job as a regulator, and the benefits of a dependable, competitive source of credit 

will help bring prosperity to rural America. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Hall can be found on page 70 in 

the appendix.] 

Chairman ROBERTS. Thank you all again for appearing today before our committee and for your statements. 

Mr. Spearman, the reports I cited in my opening statement by 

the Kansas City Fed and Kansas State University paint a very 

bleak economic picture for farmers all throughout the country. I do 

not like saying that and you probably do not like agreeing to it. 

Now, I served in Congress in the 1980s, during the last farm crisis, the big one, and I am confident that nobody—nobody—wants 

to see a repeat of those tough times. Today, what are the conditions 

of the farm economy and how do they differ from those present 35 

years ago? I am hopeful they show we are not headed for another 

crisis. Even more importantly, what safeguards are in place to ensure our farmers are protected in the event we do see two, three, 

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four, five more years—I hope not, but if that is the case—of low 

commodity prices? 

Mr. SPEARMAN. Mr. Chairman, thank you for that question. The 

Farm Credit System, as the three of us all stated, is well capitalized at this time. It is well positioned to withstand the possible 

downturns in the agriculture economy that are looming. 

The capital position is very strong. There is 16 percent capital, with $48 billion or so, roughly, in capital. The asset positions are 

strong in the System. The managements that are currently at the 

institutions are, I do not want to say a lot better, but they are kind 

of more informed, I think, today than they were back in the 1980s. 

The earnings are—were very well in the System, as you can see 

from our financial statements, and liquidity ratios are over the top. 

In fact, they are more than twice what the regulations require of 

90 days. 

I think that the System is well positioned, again, to withstand 

any downturns. Of course, there could possibly be some black 

swans out there that we are not aware of, but we have systems in 

place at the agency to keep us abreast of what those might be, and 

as an agency, we will take measures that will end up protecting 

the System more. Thank you. 

Chairman ROBERTS. I appreciate that, Mr. Spearman. 

Mr. Tonsager, your role as Chairman of the Farm Credit System 

Insurance Corporation is to ensure proper maintenance of the 

Farm Credit Insurance Fund in order to safeguard the timely payment of principal and interest on the debt issued by the System 

banks. This funding comes from a collection of premiums from System banks. 

As you noted in your written testimony, in 2013, when times 

were pretty good, the Farm Credit System Insurance Corporation 

and the Federal Financing Bank entered into a $10 billion line of 

credit agreement. Please explain what financial conditions within 

the Farm Credit System prompted this decision when we were in 

a much better situation, and what authority exists allowing the Insurance Corporation to take out this line of credit. 

Mr. TONSAGER. The line of credit can only be used in times of 

economic emergency for the United States in general, not for agriculture specifically. It is a liquidity line designed to ensure the flow 

of capital to the Farm Credit System should there be an event 

similar to 2008 that might occur again. We simply cannot use it 

unless the Federal Financing Bank agrees with us, that it cannot 

be used in the event that the System fails to fund, or properly 

manage itself. It can only be used in those economic emergency occasions. 

Similar lines of credit are available to the FDIC and to the National Credit Union Administration. The agency at that time felt it 

prudent, after watching what occurred in the 2008 time frame, to 

make this line of credit available and to have it there to assist us 

should there be a liquidity event within the markets. 

Chairman ROBERTS. Well, that was not only prudent, but you 

were a prophet, these rather bleak times we are in. I appreciate 

that. 

Let me ask a question of the full panel, so anybody is welcome 

to answer. Do not be bashful. One of the main criticisms we hear 

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about the Farm Credit Administration is that FCA’s oversight of 

System lenders’ loans is not thorough enough, that loans are being 

approved that fall outside the System’s charter or scope. How do 

you respond to that criticism, and furthermore, how does the Farm 

Credit Administration execute its regulatory duties to ensure that 

System members are able to serve farmers, but in a way that complies with the statute? Feel free. 

Mr. SPEARMAN. Mr. Chairman, what you may be referring to 

there is the similar entity lending process that the System is involved in. This was a practice that was included in the Act in 1992 

as a risk mitigator. There are--one of the primary criteria for participating in that program is that they be ineligible loans that are 

functionally similar. There are limits on what the participation 

that these institutions can involve themselves in these type of 

loans, and the agency drafted and approved a bookletter to provide 

guidelines for the System to actually update their procedures and 

get more approval from the Board on any of these loans that are 

entered into. The bookletter also addressed the possible 

reputational risk with involving themselves in these type loans. 

Chairman ROBERTS. I appreciate that. 

Mr. Hall, in your testimony, you talked about a capital rule recently approved by the Farm Credit Administration Board this past 

March, just a couple of weeks ago. Can you expand a little further 

on this rule, the rationale for approving it, and explain what you 

hope it will accomplish. 

Mr. HALL. The primary goal is to make the System more comparable to other banking institutions. The money comes from Wall 

Street, and when you have common terms and common factors that 

people on Wall Street look at buying paper, or buying the System’s 

paper, this comparability was an important step. It is a program 

that I think the agency has been involved in for about three or four 

years, proposing rules, and in March, the Board approved the adoption of that rule. 

Chairman ROBERTS. I appreciate that. 

Senator Stabenow. 

Senator STABENOW. Thank you very much, Mr. Chairman, and 

again, thank you, to all of you. 

I wonder if you might just expand a little bit, because I am sure 

we are going to hear more about similar entity authority and some 

of the high profile cases that there have been concerns raised 

about, if you could expand a little bit more on steps that you have 

taken to address that, and again, how this mitigates risk from your 

perspective. Any of you are welcome to answer that, so Mr. 

Spearman. 

Mr. SPEARMAN. Okay. I will start, Senator. Thank you. As I mentioned previously, some of the steps that have been taken have 

been to raise or heighten awareness that these type loans may create some controversy. There is—the Act does permit these type 

loans as a risk mitigator, and the way that it does is that the System is a monoline lender. They have to be there for agriculture in 

good times and bad. 

The guidelines that we put out in our bookletter are that the 

Board needs to be more involved in these type loans and that 

there—the policies and procedures are examined by our examiners 

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12 

to make sure that they have been updated and that there is—the 

institutions are keenly aware that these are controversial type 

loans. 

Senator STABENOW. Would anyone else like to respond? Yes. 

Mr. TONSAGER. Yes, if I could. Thank you, Senator. I would just 

like to mention that Congress over the years has provided several 

elements within the Farm Credit Act that require banks and the 

Farm Credit System to work together, and this is one of those elements. For every dollar that is invested in a similar entity loan, 

there is a dollar from a private banker. These loans cannot be done 

without a private banker involved with it, and there has to be at 

least a 50 percent involvement by another party other than the 

Farm Credit System. 

I believe there has been, there is some misunderstanding about 

these kinds of loans. They have been authorized for many, many 

years. They include, for CoBank’s perspective, utility loans, communication loans, and other types of loans. You not only broaden 

the capacity of the System by having these loans, you strengthen 

the relationship with bankers in this particular area and other 

areas of the System. There is literally billions and billions of dollars done together with the banking community each year and 

thousands and thousands of transactions between the Farm Credit 

System and banking. 

Senator STABENOW. Thank you. 

Mr. Hall, did you want to add anything? 

Mr. HALL. The only thing I would add is the reason behind the 

similar entity lending back in the 1990s was to allow the institutions to broaden their base of risk. They are functionally similar. 

They are not eligible loans, so I think that is where some of the 

confusion comes in. But, I think that we have monitored as an 

agency similar lending activity. We have asked for additional oversight and we will continue to monitor as an agency to make sure 

it is proper and appropriate. 

Senator STABENOW. Thank you. 

Changing a little bit to a different area of concern in terms of 

risk in agriculture, and that is the decline in the total number of 

farms, which is certainly something that we are all concerned 

about. According to the USDA, from 2014 to 2015, the United 

States lost more than 18,000 farms and over one million acres of 

farmland. The trend in the average age of the American farmer, as 

in all of our areas in the economy, the average age is 58 years old. 

I wonder if you might speak to and describe some of the work that 

your institutions are doing to support new and beginning farmers, 

which are very, very important, obviously, to all of us. Mr. 

Spearman. 

Mr. SPEARMAN. Thank you, Senator, for that question. Yes. The 

YBS program that you alluded to was a program that was added 

to the Act in the early 1980s and it was added with the purpose 

of providing a vehicle to bring more young, beginning, and small 

farmers into the agricultural sector. 

Some of the provisions that are provided under that Act is that 

there could be lesser interest rates charged in the underwriting 

process. Education is provided for those folks who are not very familiar with some of the operations of agriculture. We have passed 

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a bookletter that encouraged farmers who borrow from the System 

to be more involved with the youth aspect of farming. The lenders 

are—the bookletter addresses the fact that the System institutions 

who lend the money actually survey their territories and make sure 

that they are addressing underserved folks within the territories. 

Senator STABENOW. Thank you. 

Would anyone else like to respond to the role that you have with 

new and beginning farmers? Yes, Mr. Tonsager. 

Mr. TONSAGER. I think it has been, for the Systems mission, it 

is a significant success story to look at the data that has been accumulated regarding the growth in those loans in those areas, and 

I think the System has taken this very seriously, in my discussions 

with them, the requirement to do this, and they have taken it to 

heart and actually aggressively pursued this program. 

They each have their own individual programs designed for their 

region. We examine for them to execute those programs. The report 

is given to us each year, and we, in turn, report to Congress each 

year about the results of that effort. 

Senator STABENOW. Great. 

Mr. Hall, did you want to add anything? 

Mr. HALL. Just one comment. Based on my previous experience 

working with the Farm Service Agency, I note there are a lot of 

partnerships between the System and the Farm Service Agency on 

guaranteed programs that are available. I know the System is very 

active in working with other partners and making sure that this 

population is served. 

Senator STABENOW. Thank you, Mr. Chairman. 

Chairman ROBERTS. Senator Tillis. 

Senator TILLIS. Thank you, Mr. Chairman. 

First, I am from North Carolina. We have a highly diversified 

farming community and some farmers are doing pretty well right 

now, but others are struggling. I just want to echo that we need 

to be careful. If this downturn in prices continues, we could see a 

greater number of farmers harmed over time and we need to make 

sure we are working to get things back on track. 

Second, I want to talk about some of the future risks to farmers 

and the agricultural sector. It may seem odd asking this panel 

about GMOs, but is the Farm Credit Administration looking ahead 

and seeing how the different fixes for GMO labeling will affect 

farmers? If we do not fix this labeling issue, then people like 

Kellogg’s and Campbell’s, and a number of other major producers 

of food, are going to start reformulating. Over the course of the 

next few years, sugar beets will end being an input to most sugar 

in favor of sugarcane. Over 90 percent of all the corn grown in the 

United States is a product of GMO. I do not know what Campbell’s 

is going to do to replace that in their soups. 

The same refomulatory dilemma that sugar and corn present will 

happen, to a certain extent, with white potatoes. In 2014 53 percent of all the sweet potatoes grown in the United States were 

grown in North Carolina. Roughly seventy percent of the exports 

were from North Carolina. None of them are GMO. I assume that 

Campbell’s will decide to replace white potatoes with sweet potatoes. It would be good for North Carolina, not necessarily good for 

the white potato growing states. 

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The point that I am making is this labeling issue represents a 

major risk in terms of demand in the near future. Has FCA looked 

at this in terms of your portfolios to analyze what it means if a labeling law completely shuts demand down for certain commodities, 

say, sugar beets? 

Mr. SPEARMAN. Senator, a very good question. What we do as a 

safety and soundness regulator is to try and examine all risks. We 

do have economists on staff who report to us regularly—— 

Senator TILLIS. Have these economists done analysis on the particular policy and if Congress does not act, what the near, intermediate, and long-term effects will be on some of these commodity 

producers? 

Mr. SPEARMAN. Well, they analyze all risks within the System, 

some known and some unknown to others—— 

Senator TILLIS. Would it be possible for my staff to get in touch 

with you to see to what extent they recognize the impact reformulation by Campbell’s and Kellogg’s and the major food producers 

will have on the farm economy? These food companies will increase 

demand that will exceed our own capacity, say, for sugar, corn, soybeans. If these commodities that are grown in the United States 

are not available, they will source them from other parts of the 

world. They will find other sourcing inputs, and it seems to me 

that will have a devastating impact on commodity prices. Unless 

economists have taken that analysis into account, recognizing this 

reformulating starting right now, it will start on steroids in July 

and August if nothing is done regarding this labeling issue. It is 

not one of these five-or ten-year market disruptions. This is probably a one-or two-year market disruption. 

I would be very interested in getting any analysis on how ingredient reformulation would affect the portfolio of farmers who are in 

the crosshairs of these target commodities. There is no question in 

my mind that the major food producers, those who put cans and 

boxes on the shelves, are going to reformulate to the maximum extent that they can. When you are talking about commodities that 

are in the 90th percentile in terms of GMO products—safe products, I might add, at least according to the FDA, the Department 

of Agriculture, and the EPA—what are farmers going to do? Who 

are they going to sell to? If they do sell, with the demand being 

down, to what extent does this affect a portfolio, a financial portfolio in terms of farmers ability to pay their bills? 

I do not expect you to answer that question now. You probably 

did not expect to get this question, and frankly, when I came into 

the room, I did not expect to ask the question. 

[Laughter.] 

Senator TILLIS. But, this is an example of risks that are dependent upon Congressional action or inaction, and I think it is something that you need to look at, because this labeling issue is a potential looming crisis for some of the farmers out there. 

I will follow up with questions to the agency so that we can get 

specific information on how this could be destabilizing to the sugar 

beet growing states, the corn growing states, the potato growing 

states, the soybean growing states. I mean, it is an equal opportunity disrupter and I think we need to get some financial analysis 

behind it. 

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Thank you. Thank you, Mr. Chairman. 

Chairman ROBERTS. Let me say before I recognize Senator Bennet, on behalf of the Ranking Member, our distinguished Ranking 

Member, that the responsibility and requirement that Mr. Tillis 

just raised with regards to agriculture biotechnology, note the difference. As opposed to GMO, it is just called agriculture biotechnology, ABT. It is a good question, and it is a challenge that 

the Farm Credit System ought to be thinking about, as well as 

every lender that we have at our disposal within the world of agriculture. 

That responsibility is right here in this committee, and also right 

in the Senate of the United States. The House has acted. We will 

act. The distinguished Ranking Member and myself and staff have 

been working overtime to try to come to an agreement that we 

could bring to the floor where we could get 60 votes. 

But, I think Mr. Tillis’ admonition is a very good one, more especially to everybody in the farm lending field. Reformulation is a 

pretty fancy Senate word for we are not going to buy what you are 

selling, and that is happening today, as we speak, with the sugar 

beet producers. We know that we must act. Everybody on this committee knows we must act. I want you to know that, but I also 

want you to know that Mr. Tillis has raised a very, very important 

point. 

Senator TILLIS. Yes. Mr. Chairman, if I may, it is just that we 

need to put a face on who is affected by this policy, and it is farmers. It is farmers that have got crops in the ground now. They have 

got plans to put crops in the ground next year. The big businesses 

will find out what they can buy to avoid what I think is ill advised 

policy, and the first evidence of this is in Vermont. They will be 

able to make the change because they have the resources and the 

reach to do it. The farmers do not. 

Thank you, Mr. Chairman. 

Chairman ROBERTS. Senator Bennet. 

Senator BENNET. Thank you, Mr. Chairman. Thanks for holding 

this important hearing, and I wish you and the Ranking Member 

well in your negotiation. Time is not on our side. 

I want to thank the witnesses for being here today and for your 

prudent oversight of the FCA. Mr. Chairman, you said that the 

mission of the FCA is to serve farmers and ranchers in good times 

and in bad times. As has been said, farmers and ranchers across 

the country are facing real financial hardships spurred by low commodity prices. Producers are bringing in less revenue, but their 

overall costs of farming have increased year over year and are forecasted to increase next year, as well. On top of that, persistent 

drought conditions have added extra volatility, which makes it 

clear to me that farmers need all available options when it comes 

to lending, and the Farm Credit System was designed to mitigate 

against these fluctuations and the risk posed by farming and 

ranching. 

I wonder whether you could describe the role of the Farm Credit 

System, particularly in tough economic times, what role it plays in 

rural communities facing these economic hardships, and I would be 

happy to hear anybody on the panel address them. 

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Mr. TONSAGER. Sure. Thank you, Senator. I think that the obligation was made clear to us in the 1980s, in the struggling time 

we had back at that time, that there needed to be a level of 

strength and commitment, and in rural America, these are farmerowned cooperatives. These farmer board members are extremely 

committed to their communities, and that is number one, that basic 

governance that occurs within that. 

I think the System has an obligation to make sure the System 

remains safe and sound, that it is a reliable lender through that 

time, but it also has an obligation to make sure to work closely 

with producers, and I think they have developed pretty good 

strengths in their loan officers and how they work with clients and 

how they make sure they get the best opportunity for financing. I 

think that the financial strength of the System and the capacity of 

the System in their lending and working with producers is going 

to make a lot of difference. 

In the 1980s, we saw a lot of producers that simply could not get 

the credit they needed at the time, or they were overextended credit, and so their income was replaced by credit and they lost ground. 

I think one of the critical elements of this is how loan officers, both 

in the Farm Credit System and the private sector, work with those 

individual producers and help them recognize the circumstances 

they are in, fund them if they possibly can, or help work with them 

if it becomes too challenging. It is a tough, tough thing that happened that time. We lost thousands of producers, and many of 

them were fundamentally personally harmed in the process of 

doing that. 

Additionally, I would like to add that there are borrower rights 

involved in this. The law requires that the Farm Credit System 

provide rights to borrowers in the event they are foreclosed on or 

acted upon. By law, a process must be followed with individual producers when the time comes to make decisions about their credit. 

Senator BENNET. Thank you for that thorough answer. Is it thorough enough? 

I will ask a second question, then. Last year, Colorado producers exported more than $1.8 billion in farm goods to countries around 

the world. Some Farm Credit institutions like CoBank, which is 

headquartered in Colorado, are engaged in export financing to support producers as they look to markets abroad. Could you talk a 

little bit about the sort of growth that we are seeing in export financing for ag in this country. 

Mr. HALL. I think part of the change we have seen is previous 

USDA programs like GSM programs have been replaced or substituted with other private credit funding, and I think the ability 

for CoBank, in particular, to step up and add that kind of financing 

option helps improve the export market. Obviously, when you are 

dealing with billions of dollars, you are going to have to have some 

line of credit to be able to participate in the international markets. 

Senator BENNET. It is becoming increasingly an important part 

of our rural economy, these exports. Eighty percent of the wheat 

that is grown in Colorado is exported from Colorado. Our dairy is 

exported, as well, and we are looking to open up these new markets 

and this can help. 

Thank you, Mr. Chairman. 

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Chairman ROBERTS. I want to remind members that we will soon 

have three votes. We are going to keep the hearing going by alternating who holds the gavel. I appreciate everybody’s help and patience. 

Senator Ernst. 

Senator ERNST. Thank you, Mr. Chairman. 

Thank you, gentlemen, for joining us here this morning. I would 

like to talk about different groups that might be given funding 

through the FCS, groups like veterans or other minority groups. 

Are there certain areas that maybe you target or would like to see 

more participation, whether it is women farmers or ranchers? If 

you could delve into that a little bit, maybe talk if you have some 

of those programs where you are looking at veterans or others that 

want to get into farming, ranching, any opportunities that we 

might be able to express to our constituents. 

Mr. SPEARMAN. Thank you, Senator. The YBS program provides 

an excellent entre for nontraditional agriculture. That program, it 

was structured for young, beginning, and small, but also we have 

expanded it to some degree with our rule, our diversity and inclusion rule that we passed a couple years ago, where we requested 

that the mandated institutions look at their system, look at their— 

the area that they operate in, their district, and because the mission of the System is to serve all qualified creditworthy folks. The 

System is doing that, and we are examining for it and we are definitely seeing a lot more improvement, at least since I have been 

on the Board, particularly in veterans areas. Also, thank you for 

your service. 

Senator ERNST. No, thank you. No, I appreciate that. Any other 

thoughts or examples? 

Mr. TONSAGER. I would like to say the FCA Board has been 

learning itself. We traveled together to Pine Ridge Indian Reservation last year to explore the challenges of lending in Indian country 

and got a great experience from that visit. 

Senator ERNST. Very good. 

Yes, Mr. Hall. 

Mr. HALL. I would just add, I visited Texas just a few months 

ago and visited with a young producer who was a veteran, did not 

have much agriculture experience, but has become very successful 

as a borrower in the Farm Credit System. He was complimentary 

of the support that he receives and the other educational programs 

that are available. 

I will also mention another example closer to home, from Kentucky, a young lady who used to be an employee of the Farm Credit 

System. She and her husband are involved in locally grown, community supported agriculture—— 

Senator ERNST. Oh, good. 

Mr. HALL. —and recently recognized as one of the farm women 

of the year, and I know that they are System borrowers. There are 

great examples out there, but I will say there is always more that 

we can do. 

Senator ERNST. Very good. Well, I appreciate your work with 

both veterans and others that might have challenges getting into 

farming. I think it is really important that the opportunity exists 

out there for them, so thank you for doing that. 

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Senator Tillis had brought up an interesting perspective with 

ABTs, or GMOs, whatever the term might be that we decide to use 

for different types of commodities. But, that does create a wrinkle 

that is out there. Whether you are facing challenges with legislation, whether you are facing challenges with drought or other natural disasters, which you really cannot plan for or predict, but with 

the outlook of the ag economy over the next several years, what are 

the steps that you can take within the Credit System to prepare 

for that? Maybe you could explain how that works. 

Mr. SPEARMAN. Well, Senator, as a safety and soundness regulator, as I mentioned previously, we try to examine and anticipate 

all risks that may happen. In fact, our examinations are risk based. 

We try to look at what problems that might be on the horizon and 

we try to develop rules and regulations that would help us to do 

a better job to make sure that the System remains safe and sound. 

Senator ERNST. Okay. Are you able to adapt quickly in those situations if the rules are going through the Board, reacting to the 

situation on the ground, whether it might be a drought or other crisis that you might see? 

Mr. SPEARMAN. Well, I think ‘‘quickly’’ may be kind of relative. 

Not fast enough for me, personally, but we do spend time with it 

and we do try to plan and try to see if we can help the System do 

a better job in helping distressed areas. 

Senator ERNST. Very good. Well, thank you, gentlemen. My time 

is expiring. Back to the Ranking Member. Thank you. 

Senator STABENOW. [Presiding.] Thank you very much. 

Senator Casey. 

Senator CASEY. Thanks very much. 

I want to thank you for your testimony. Chairman Spearman, I 

wanted to commend you on the answer that you gave about beginning and small—young and small farmers and the work you are 

doing there. 

I wanted to also raise, though, a question about some of the new 

risks or new challenges that you face. I know we have a lot of evidence that, in light of what happened in the 1980s and the difficulties then, that you can learn lessons from that that you can apply. 

I would have to assume, and correct me if I am wrong, though, that 

because of technological innovations and both the technology-based 

financial and ag system we have now, that some of those lessons 

may not apply because the technology and other strategies have 

changed. 

In light of that, if that is true, in light of that, how do you assess 

some of the risks you are going to face going forward that might 

be more based on the limits of the technology or based upon other 

challenges as opposed to the old 1980s problems that were encountered then? 

Mr. SPEARMAN. Well, Senator, as I mentioned previously, our examinations are risk based. Our examiners make a determination as 

to where the greatest exposures might be and our resources are 

pretty much concentrated in that area. 

You bring up a very interesting point there about technology. 

Cyber kinds of threats now are very apparent in almost all sectors 

of our economy. One part of our examination is to spend time in 

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the IT area with the institutions that are being examined, and if 

issues are found, corrective action is mandated. 

Senator CASEY. Well, I hope if, when you encounter those, that 

you bring them to our attention and ask for resources where appropriate. 

I also wanted to raise a question regarding when you assess that 

credit stress level in the System’s loan portfolio is within, well 

within risk, within the risk bearing capacity, in light of that, but 

also when you reference declining protein and dairy product and 

grain prices driving a decline in profitability, I guess it follows from 

that that you will experience maybe moderate loan growth. If you 

could just pinpoint just for 2017, as best you can, what is your outlook just in terms of 2017 and loan repayments. 

Mr. SPEARMAN. Well, Senator, one of the points that we look at 

when we make determinations for where to focus our efforts in our 

examinations is what is going to be anticipated in the allowance of 

doubtful accounts for the entities that are being examined, and we 

also look at, because of payback abilities there that could have a 

deleterious effect on an institution there. If we see an area of stress 

in that area, then we would indicate to the institution that they 

may want to look at their underwriting standards there because 

there may be something there that they are overlooking when they 

make a loan. 

Senator CASEY. I appreciate that, and I will have some questions 

for the record for the witnesses in the interest of time. Thanks very 

much. 

Senator STABENOW. Senator Brown. 

Senator BROWN. Thank you, Madam Chair, and Senator Roberts, 

also. 

Mr. Tonsager, if you would answer this, and then if others want 

to follow up. The farm economy continues to evolve, and we have 

heard discussion, obviously, about prices in the months and years 

ahead. Touch for us on how Farm Credit is equipped to withstand 

a possible higher delinquency rate on loans while ensuring continued access to credit for rural America. What is the state of the insurance fund? How much capital? Is there sufficient capital in the 

system? Share your thoughts about that, if you would, Mr. 

Tonsager. 

Mr. TONSAGER. Well, if I could start with, I think there were lessons learned in the 1980s. Coming out of the 1970s, many farmers 

were very highly leveraged, so there were programs that allowed 

them to borrow a lot of money. After that, the crisis of the 1980s, 

the amount of debt leveraged was dramatically reduced. I think the 

System did a pretty decent job, as did most lenders, about not overleveraging credit to current borrowers, and I think that is a big difference coming into the current circumstances we are in. 

Capital-wise, there are about $50 billion worth of capital in the 

Farm Credit System and about $250 billion worth of loans. The 

total leverage comes to about 16 percent, which is a very strong position to be in overall for the position of the System. 

Again, as I mentioned earlier, I think the ability of working with 

people on how they borrow money and how they work through 

their challenges is fundamentally different than it was previously. 

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There is a lot of relationship lending done where that engagement 

is part of that. 

I think it is incumbent on the agency to be very diligent and to 

closely watch the situation evolve. As Chairman Spearman said, 

the payment rate is excellent still—the debt is being repaid. We 

have very low need for allowances for losses at this point. But, that 

can change quickly as we go into these coming years, and so it is 

necessary to look for that. I think it is going to be a balancing act 

for the agency on how hard we press the System to work with producers, whether we stress the safety and soundness of the System 

or the safety and soundness of producers. I think we have to keep 

learning. We have to diligently watch the situation evolve and 

watch what the System does in working with producers. 

Senator BROWN. Thank you. I think, obviously, if we learned 

anything from 2008, it is the importance of capital, and that is 

Fannie and Freddie and it is Farm Credit and it is the nation’s 

major financial institutions. 

Let me shift, and for all three of you to answer this, if you would. 

There has been increasing interest in my state, especially in the 

city I live in, Cleveland, in locally grown food. In places like Senator Stabenow’s Detroit and in my large urban areas, it is an increasingly viable use for land. Do you see Farm Credit institutions 

involved in these areas? What do we do to ensure that these nontraditional farmers have access to credit? 

Mr. SPEARMAN. That is a very good question, Senator. That is 

particularly an interest of mine. In fact, I initially met Senator Stabenow up in Detroit once when I was at a convention there for locally grown and urban agriculture issues that were being discussed. 

The entre into urban agriculture, the way that I look at it is that 

you are expanding the pie. I think it could help the System grow 

by getting more directly involved with the urban agriculture. As 

my colleague mentioned there, he visited a place in Texas, and I 

also went to a place in Texas where I saw a young farmer who 

started out in his backyard with a little garden and now, through 

the help of the System, he has 200 acres and he is involved in the 

CSA program, and one of his major customers is Whole Foods. 

Getting out and seeing what is actually happening out in the 

field is something that I hold near and dear and I would like to 

see more of it. 

Senator BROWN. Mr. Tonsager or Mr. Hall, any additional 

thoughts on that? Thank you, Chairman Spearman. 

Mr. HALL. I would just add a couple of comments. One of the 

things that the FCA has required is for individual institutions to 

include this in their regular business planning and we examine to 

that. In addition to that, many of the institutions actually have 

local food coordinators where they work with people within the system to help support the local producers. 

Senator BROWN. Okay. Mr. Tonsager, anything to add? 

Mr. TONSAGER. Yes. I think we are very much focused on the 

producer side of this. USDA, the Marketing Service, Rural Development, and other agencies, they offer a lot of resources to the co-ops 

or the groups that want to establish niche or emerging markets. I 

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think the System is working closely with them to help make sure 

there is a flow of product. 

Senator BROWN. Understand—and, obviously, you are more rural 

oriented than urban oriented—my city of Cleveland had a population the year I was born of about 950,000. Today, it is under 

400,000, and there are lots of opportunities, maybe—I guess it is 

the right word—but opportunities for rural agriculture that people 

are really taking advantage of. There are a lot of kind of trendy 

new restaurants that want to source locally and can really matter. 

I just ask all three of you to always be aware of that. It is a relatively small part of your portfolio, but a crucial area for a lot of 

the things that you all three believe in, so thank you. 

Senator GRASSLEY. [Presiding.] I guess I am the only one at the 

table now. 

[Laughter.] 

Senator GRASSLEY. First of all, even though Chairman Roberts is 

not here, I think it is very good for all of us to say it is a very appropriate oversight hearing to have, and particularly with regulators to be effectively enforcing our rules and regulations that are 

designed to preserve an important System for agriculture. Particularly, this hearing is appropriate because of the price of, maybe I 

should not say all agriculture products, but at least in Iowa where 

we are such a corn and bean state, with the production of those 

being way below the cost of production. We count on people like 

you keeping the System very sound. 

I will ask any one of you that want to answer this, but I do not 

expect all of you to have to get in, how detailed are the audits of 

the Farm Credit Administration performed? By that, I mean does 

the Farm Credit Administration randomly pick different loan portfolios and examine them line by line to see if what is being reported matches up with the actual risk, or are the audits more at 

the 30,000-foot level in the nature of looking at totals and final projections? 

Mr. SPEARMAN. A very good question, Senator, for a regulator. I 

would say off the top of my head, it is all three. The primary focus 

of the examinations is risk-based, though, to see where could the 

System be at more jeopardy of not remaining safe and sound. Each 

institution is examined once every 18 months—a report is issued 

once every 18 months, but the examinations can be ongoing all 

year. The one bank where we see the most risk is examined once 

a year. These reports are issued once a year on that institution. 

That is pretty much the approach that we take in our examination. 

Senator GRASSLEY. You wanted to say something. 

Mr. TONSAGER. If you do not mind, I would like to add to it. The 

examiners are extremely well trained; years of training are involved. The data comes from each institution all the time, so we 

have an ongoing look at the System’s progress. Each institution, by 

statute, must be done every 18 months at a minimum. We have sat 

down and gone through with an examiner demonstrating what they 

go through in the examination process. It is extremely thorough. 

Each examiner reports to the boards of directors of each institution 

privately at the end of the examination to make sure the boards 

of directors are well aware of what has occurred in the examination. It is a very, very thorough process. 

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Senator GRASSLEY. Well, then, would it be—I gave two alternatives. Would it be assumed that your answer to my question that 

you randomly pick different loan portfolios and examine line by 

line to see if what is being reported matches up with actual risk, 

is that—— 

Mr. TONSAGER. Yes. It is—— 

Senator GRASSLEY. Is that the way it is done? 

Mr. TONSAGER. Well, it is not random, it is planned. 

Senator GRASSLEY. Okay. Now, my second question is, has the 

Farm Credit Administration ever required an institution to divest 

a loan that was not appropriate to the mission of the Farm Credit 

System? 

Mr. HALL. Yes, sir, it has. There have been instances that the 

FCA has taken action, corrective action, and asked for an institution to actually divest. While we cannot give you specifics here, 

that has happened, yes, sir. 

Senator GRASSLEY. Okay. My last question. Before I ask the 

question, I hope I am right. By law, Farm Credit lenders cannot 

take deposits. However, many advertise the ability of members to, 

quote, ‘‘advanced conditional payment accounts.’’ One of these accounts has an online advertisement that as of yesterday stated a 

person could, quote, ‘‘earn interest without tying up your funds,’’ 

end of quote. Quote again, another one, ‘‘easy access. Your funds 

are always available to you. Go online and use the phone.’’ And the 

last quote, ‘‘complete liquidity, contrary to CDs,’’ end of quote. 

Those are online advertisements. 

Could you explain to me how these accounts are any different 

from checking or savings accounts? These Farm Credit accounts 

seem to function exactly like checking and savings accounts based 

upon the way that they are being marketed. 

Mr. SPEARMAN. Senator, these accounts are not checking accounts. They are—this particular procedure is allowed for under 

the Act and they are actually prepayment or draft accounts where 

borrowers from the System can put funds in to pay their loans 

down. 

Senator GRASSLEY. Then you are telling me—I think you just 

told me that they are not like checking and savings accounts, even 

though the advertisements online seem to lead people to believe 

that. 

Mr. SPEARMAN. I would have to kind of see the advertising, but, 

no, they are not checking accounts. 

Mr. TONSAGER. Senator, they are not insured by the Federal Deposit Insurance Corporation. They are at risk. Those funds are simply accounts that allow producers with long-term credits to build 

up their repayments and have these funds still available to them. 

Senator GRASSLEY. Mr. Chairman, I have asked the questions 

that I have to ask this panel. Just in case I do not get back, since 

we have got two more votes, just in case I do not get back for the 

other panel, I have a constituent, Mr. Verlin Barker here from 

Oelwein, Iowa, and I would like to have you ask him a couple of 

questions I was going to ask if I do not get back. 

Chairman ROBERTS. [Presiding.] I would be delighted. 

Senator GRASSLEY. Thank you. Go ahead. 

Chairman ROBERTS. Thank you. 

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Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much, Chairman Roberts, 

and thank you to all of you. 

Mr. Tonsager, we know how important credit is to rural America 

including the loans, loan guarantees, other financial tools offered 

by the Farm Credit System, as well as commercial community and 

farm banks. We know that each of these lenders provides about 40 

percent of all farm debt, whether it is financing for farm real estate 

or for farm production. 

Often, the Farm Credit System and our commercial and community banks work together on deals for the benefit of farmers, ranchers, and producers, and yet other times, Farm Credit banks provide 

loans that are non-agricultural loans. I have heard from a lot of our 

small banks from Minnesota that they believe there is an unfair 

advantage here because of how that is being handled. Could you 

explain what is happening and your view on this. 

Mr. TONSAGER. Well, there are a couple of things to consider, I 

think. First, so, when the Farm Credit System is loaning to an individual producer, if that producer is a full-time farmer, the System can lend to him for all of his credit needs, including if he establishes other businesses. We have had some cases where farmers 

may choose to start another business of some kind and they are allowed by the statute to use the funds from the Farm Credit System 

for that purpose. It appears to some people as if Farm Credit is 

lending to those businesses without any link to agriculture. That 

is one key element, I think, that we run into from time to time 

about concern on that matter. 

Senator KLOBUCHAR. Well, one thing that is always true in agriculture is that the price of commodities is changing and that is why 

we want to make sure that our end users and farm producers can 

safely use futures and options, and we have had some issues with 

this, as in rural America. It is also a reason why providing credit 

to the agricultural sector is complicated. About ten years ago, our 

grain elevator operators were facing some pretty big margin calls, 

as you know, and about two years ago, we saw price volatility in 

the swine market resulting in margin calls of about 300 to 350 million dollars. 

What role do the Farm Credit System banks play when there is 

volatility in commodity prices? 

Mr. TONSAGER. I recall when that happened, and the System was 

able to help address that challenge for producers and was able to 

fund several billion dollars to meet the margin calls, primarily of 

grain elevators in that case, which were seeing a huge price increase—well, it would be less than ten years ago, I suppose—but 

it was seeing a huge price increase in a very large crop, so it was 

able to meet those needs. 

Senator KLOBUCHAR. Mr. Hall, with experience in farming yourself, the same type of question. Do you think the Farm Credit System is prepared to handle the current volatility in agricultural 

markets, and how is the current market situation similar to those 

that occurred in 2007 and 2008, or how is it different? 

Mr. HALL. I think there are a lot of similarities and I think the 

system is prepared, and as examiners of the system, we want to 

make sure they are prepared as we go into periods of more volamw42035 on AGRINON012 with DISTILLER

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tility. I will go back even to the 1980s. I think one of the big differences between now and then is the cost of money. At that point, 

a lot of the farm income was going to pay off debt. I think farmers 

have paid down debt coming into this current period, and I think 

with lower interest rates, they are going to be able to work their 

way through it. I do not see a comparison to the 1980s, but I do 

see that there is volatility and bigger challenges for producers 

which present challenges to the System and us as examiners and 

regulators. 

Senator KLOBUCHAR. Mr. Spearman, do you want to add anything about the volatility in the market and how you think Farm 

Credit is prepared to handle that? 

Mr. SPEARMAN. Well, as my two colleagues have said, the System 

is well positioned, a strong capital position, strong liquidity position, strong earnings it is a lot different than what it was, I think. 

Back during the 1980s, there were issues with land, where property had been borrowed on and unfavorable underwriting standards that today cannot happen. There is—the underwriting standards are a lot more modern and a lot more favorable. There is a 

lot that is going on today there that just did not exist at that time. 

Senator KLOBUCHAR. Back to you, Mr. Hall. I know in your testimony, you talk about reforms that have been made after the agricultural credit crisis of the 1980s and that those reforms came 

about because of that crisis. Do you think that there is a reason 

to make more reforms to the system now? 

Mr. HALL. At this point, I do not. It would not be our position 

as a regulatory agency to propose any reforms, but I do think that 

as a result of those things, things like restructuring of the system 

has made it much more efficient and better able to serve producer 

needs, and I think the similar entity lending was an important tool 

that this committee approved in order to diversify the portfolio of 

the System to help farmers, ultimately, by making sure that there 

is plenty of capital and credit available. 

Senator KLOBUCHAR. All right. Thank you very much. 

Chairman ROBERTS. I thank the Senator for her questions. 

That concludes the first portion of our hearing this morning. 

Thank you, gentlemen, for appearing before our committee to discuss the state of credit in farm country and the role of the Farm 

Credit Administration in assuring our national Farm Credit System is both sound and operating within the bounds of the statute. 

To my fellow members, we would ask that any additional questions that you may have for the record be submitted to the committee clerk five business days from today, or by 5:00 next Thursday, May 26. 

We would now like to invite the second panel of witnesses to 

come to the table. 

[Pause.] 

Chairman ROBERTS. I would like to welcome all the members of 

the second panel. As you can see, we are in a process of having 

three votes on the floor of the Senate. I think to accommodate all 

members and to do this in a way that would be consistent with the 

time constraints that we have is that I am going to introduce—I 

am going to exercise executive privilege or Chairman privilege and 

introduce the gentleman from Kansas, and then if you would give 

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your statement, and then by that time, perhaps the distinguished 

Ranking Member will be here or whomever. We may have to recess 

the committee until somebody comes back. 

But, at any rate, I am going to introduce Mr. Leonard Wolfe, and 

Leonard, then give your statement, and then, gentlemen, when you 

are introduced, if you could give your statement, we will let Senator Stabenow know what the order is. 

Mr. Wolfe, Leonard is the President and the CEO and Chairman 

of the Board of United Bank and Trust in Marysville, Kansas. I 

have to add, home of the famous black squirrel. 

[Laughter.] 

Chairman ROBERTS. I know that this is the home of the famous 

black squirrel because some gentleman dresses up as a black squirrel. 

Mr. WOLFE. It is not me. 

Chairman ROBERTS. I know that. 

[Laughter.] 

Chairman ROBERTS. But, he tapped me on my back and I turned 

around to discover a life-size black squirrel. I hope that the EPA 

and Fish and Game folks and Interior will not list him as being endangered. 

United Bank and Trust is a $600 million agricultural bank with 

15 branches in nine northeast Kansas communities. Leonard is the 

past Chairman of the Kansas Bankers Association. He currently 

serves as Chairman of the American Bankers Association Agriculture Lending Task Force, no small task. 

A graduate of Southwestern College in Winfield, Kansas, Mr. 

Wolfe began his banking career in 1979, and first became President 

and CEO of a bank at the young age of 28. 

Leonard, I really appreciate your being here and representing 

our great state. Thank you again to the witnesses for appearing. 

Basically, we will rotate back and forth, so Leonard, why don’t you 

proceed. 

STATEMENT OF LEONARD WOLFE, PRESIDENT, CHIEF EXECUTIVE OFFICER, AND CHAIRMAN OF THE BOARD, UNITED 

BANK AND TRUST, MARYSVILLE, KANSAS, ON BEHALF OF 

THE AMERICAN BANKERS ASSOCIATION 

Mr. WOLFE. Thank you, sir. Chairman Roberts, Ranking Member 

Stabenow, and members of the committee, my name is Leonard 

Wolfe. I am the President, CEO, Chairman of the Board for United 

Bank and Trust in Marysville, Kansas. We are the largest commercial agricultural lender in Kansas, second only to the Farm Credit 

System. I appreciate the opportunity to present the views of the 

ABA on credit conditions and availability in rural America. 

The topic of today’s hearing is very timely. While farm and ranch 

incomes over the past five years have been some of the best in history, there is no question that the agriculture economy is slowing. 

Despite this, the banking industry is well positioned to meet the 

needs of U.S. farmers and ranchers. Interest rates continue to be 

near historic lows. And the banks have the people, capital, and liquidity to help America’s farmers and ranchers manage through 

any turbulence in the economy. Importantly, with the farm bill in 

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place, farmers, ranchers, and their bankers have certainty from 

Washington about future agricultural policy. 

In 2015, farm banks, defined as any bank with more than 15.5 

percent of their loans made to farmers or ranchers, now provide 

over $100 billion in total farm loans. Small farmers rely particularly on banks for funding. Farm banks hold $48 billion in small 

farm loans, with $11.5 billion of that in micro small farm loans. 

Farm banks are healthy and continue to be forward looking, growing capital and increasing reserves. This provides flexibility to 

serve our nation’s farmers and manage risk associated with any 

downturn in the agricultural sector. 

I would like to thank Congress and especially the Agricultural 

Committees for repealing the borrower term limits on USDA Farm 

Service Agency guaranteed loans in the last farm bill. Banks work 

closely with the USDA to make additional credit available by utilizing guaranteed farm loan programs. 

On the subject of USDA guaranteed farm loan programs, I believe that Congress needs to consider reforms to the programs, specifically to raise the cap on these loans due to the rising cost of agriculture along with the modernizing of the programs. The USDA 

Farm Service Agency guaranteed loans have allowed farmers to 

continue to access credit from banks like mine as they grow and 

assuring credit access for farmers across the country. 

We remain concerned, however, with one area of the agricultural 

credit market, the Farm Credit System. Over the years, the Farm 

Credit System has veered away from its intended mission and now 

represents an unwarranted risk to taxpayers. As a governmentsponsored enterprise, it represents a risk to taxpayers in the same 

way that Fannie Mae and Freddie Mac do. 

The Farm Credit System was founded in 1916 to ensure that 

young, beginning, and small farmers and ranchers had access to 

credit. However, that is not its focus today. The Farm Credit System has grown into an enormous $304 billion System offering complex financial services. To put this into perspective, the Farm Credit System—if the Farm Credit System were a bank, it would be the 

ninth largest bank in the United States, and it is larger than 99.9 

percent of the banks in this country. 

The Farm Credit System benefits from significant tax breaks valued at $1.3 billion in 2015, giving it a significant edge over private 

sector competitors. Moreover, the Farm Credit System enjoys government backing formalized by the creation of a $10 billion line of 

credit with the U.S. Treasury in 2013. 

It is shocking that nearly half of the entire Farm Credit System’s 

portfolio is to individuals that each owe more than a million dollars. These are not young, beginning, and small farmers and ranchers. The System now primarily serves large established organizations that do not need subsidized credit. It is clear that the Farm 

Credit System has become too large and unfocused, using taxpayer 

dollars to subsidize large borrowers. 

We urge Congress to perform an autopsy on the system to ensure 

that its charter of helping young, beginning, and small farmers is 

being followed. If it is not, we urge Congress to remove the significant tax break provided to the System. 

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Banks like mine are proud of the work we do to support our nation’s farmers and ranchers. The agricultural community is a critical part of our economy and America’s banks remain committed to 

serve it through good times and bad. 

Thank you, and I would be happy to answer any questions. 

[The prepared statement of Mr. Wolfe can be found on page 103 

in the appendix.] 

Chairman ROBERTS. Our next witness is Mr. Gus Barker, President and CEO of the Community Bank of Oelwein, Iowa. 

Mr. BARKER. Thank you, Mr. Chairman. 

Chairman ROBERTS. Just a moment. 

Mr. BARKER. Okay. 

Chairman ROBERTS. I have got to say some other—— 

Mr. BARKER. Oh, okay. Sorry. 

Chairman ROBERTS. —wonderful things on your behalf. 

Mr. Barker grew up on a small grain and livestock farm in 

northwest Iowa, always had the dream of taking over that operation. But with escalating costs and little capital, Mr. Barker was 

forced to begin his banking career in the 1970s and has served in 

senior management positions in community banks ever since. He 

now serves as an elected federal delegate for the northern half of 

Iowa for the Independent Community Bankers of America. 

Mr. Barker, thank you again for testifying and we welcome your 

statement. 

STATEMENT OF VERLIN ‘‘GUS’’ J. BARKER, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, COMMUNITY BANK OF 

OELWEIN, OELWEIN, IOWA, ON BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF AMERICA 

Mr. BARKER. Thank you, Mr. Chairman. As you stated, I am Gus 

Barker, President and CEO of Community Bank of Oelwein, Iowa. 

I thank you for the opportunity to testify on behalf of the ICBA, 

the Independent Community Bankers of America. Community Bank of Oelwein is a $112 million full-service bank 

employing exceptional bankers who work with our customers, providing them products they need while treating them like friends 

and family. Our success is measured by the relationships we build 

with customers and providing individuals with hands-on service. 

We are located in northeast Iowa, serving ag borrowers who 

produce corn, soybeans, and livestock. 

America’s 6,400 community banks, located primarily in rural 

areas and in virtually every small town, do an outstanding job providing credit in good times and bad. Rural community banks provide more than one-half of all ag credit from the banking sector. 

Most farmers are, at best, breaking even right now, and then 

only if they have low debt levels and low carryover debt. Most 

threatened are the young, beginning, and small, or YBS farmers, 

particularly if they have high debt levels or if they have little to 

no additional financial backing. YBS and less financially secure 

farmers are the most at risk of exiting agriculture in the future. 

However, continuation of low farm prices will cause many farmers to exit, including those currently financially strong and larger 

farmers. We do urge Senators to discuss this with the banking regulators so they do not overreact to this situation. My written testimw42035 on AGRINON012 with DISTILLER

28 

mony also makes recommendations on USDA farm loan programs 

to keep our farmers in business. 

Regarding FCS, year-end 2015 FCS total assets were $304 billion, an 86 percent increase from just ten years earlier of $163 billion. FCS gross loans of $236 billion represents a 92 percent increase from a decade earlier. FCS net income last year was $4.7 

billion, and the FCS effective tax rate is four percent. By comparison, my bank, a C Corp, is taxed at 34 percent Federal and five 

percent state, almost 40 percent total tax, 35 percent more than 

the FCS. 

FCS has a huge advantage in pricing loans, enabling their cherry 

picking. FCS also grows their retained earnings greatly with this 

tax benefit. FCS has had tremendous growth over the last decade 

when FCS lobbied Congress and its regulator for expanded powers 

and inappropriately received many of those powers through their 

complicit regulator, the FCA. 

We also question FCA’s obtaining the $10 billion line of credit at 

a time of record profits. FCS has an insurance fund supposedly to 

protect their lenders, but we note that their allowance for loan 

losses is only 54 basis points. By contrast, my bank’s is 186 basis 

points. Perhaps if FCS had an adequate insurance fund and higher 

loan loss reserves, they would not need to dash to the Treasury for 

a $10 billion line of credit with no Congressional involvement, contrary to what was recommended by the Brookings Institution report. Why did FCA act in secret behind Congress’s back and without meaningful public transparency? 

We have surveyed bankers in every geographical region on FCS 

issues in recent years. All bankers are alarmed by the FCS’s cherry 

picking activities. FCS leverages tax and funding advantages as a 

government-sponsored enterprise, a GSE, to undercut loan rates on 

community banks’ biggest and financially strongest customers and 

ignores the less creditworthy borrowers. Banks’ larger, more stable 

borrowers are important to bank portfolios, allowing lending risks 

to be spread over both small and large operations, and losing the 

biggest and best borrowers elevates the risk in our banks’ lending 

portfolios. This also diminishes banks’ ability to serve agriculture 

and rural America. It lessens credit expertise available to the farmers. FCS below-market pricing lessens the credit choices for farm 

borrowers and lessens credit availability in rural America. 

The regulator, FCA, wants to allow FCS to broadly make nonfarm loans. While FCS will continue to make farm loans, they want 

to also cherry pick the very best non-farm loans from bank portfolios, although not authorized by law. FCA’s proposed mission-related investment regulation would allow FCS lenders to gain approval for broad non-farm lending programs labeled as investments. Loans for manufacturing, apartments, and office buildings 

would be eligible. 

FCA’s lack of awareness of CoBank’s $725 million Verizon loan 

is alarming. Verizon and Vodafone are located in New York City 

and London. This is not rural Iowa. It is not rural America. It is 

not authorized by statute. FCA’s excuse—allowed under the similar 

entity provision of the Act. Not credible. That provision is not intended to allow enormous non-farm loans of hundreds of millions 

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of dollars to the largest corporations in non-rural areas or in the 

world’s largest cities. 

FCS cherry picks the very best loans. FCS seeks to lend aggressively for non-farm purposes. FCS and CoBank are loaning to very 

large non-farm corporations. These activities undermine community banks’ ability to remain in business and serve rural communities and farmers. This diminishes the number of rural community banks. FCS’s actions, therefore, threaten rural credit availability. They are worse than a race car that has veered off-track 

and we suggest reforms are needed. 

Thank you. 

[The prepared statement of Mr. Barker can be found on page 56 

in the appendix.] 

Chairman ROBERTS. I appreciate your statement, sir. 

Our next witness is Mr. Doug Stark of Omaha. Senator Sasse 

was scheduled to introduce you. We will save a little time, in that 

Senator Sasse usually repeats the Constitution of the United 

States before he asks a question. 

[Laughter.] 

Chairman ROBERTS. Mr. Stark is the President and CEO of Farm 

Credit Services of America and Frontier Farm Credit. Mr. Stark 

has been with the Farm Credit System for 35 years, having served 

in several capacities, beginning as an Assistant Loan Officer. During his career, Mr. Stark also worked for the Farm Credit Administration in Spokane, Washington, for two years as an examiner and 

supervisor. 

Mr. Stark, thank you for joining us today, and hopefully, we will 

turn to our distinguished Ranking Member for the next witness, 

but if not, I will try to do the best job possible. Please go ahead, 

sir, with your statement. 

STATEMENT OF DOUG STARK, PRESIDENT AND CHIEF EXECUTIVE OFFICER, FARM CREDIT SERVICES OF AMERICA AND 

FRONTIER FARM CREDIT, OMAHA, NEBRASKA, ON BEHALF 

OF THE FARM CREDIT SYSTEM 

Mr. STARK. Okay. Thank you, Mr. Chairman, Ranking Member 

Stabenow and members of the committee. I appreciate the opportunity to testify on behalf of the Farm Credit System. My name is 

Doug Stark and I am President and CEO of Farm Credit Services 

of America and Frontier Farm Credit headquartered in Omaha, 

Nebraska, and Manhattan, Kansas, respectively. 

Mr. Chairman, Senator Stabenow, thank you very much for 

being original cosponsors of the Congressional resolution congratulating Farm Credit on its 100th anniversary. We are very proud 

that so many of your colleagues on this committee are also resolution cosponsors. 

We and our colleagues in the banking industry come before you 

today with good news. The commercial banking industry recently 

announced record profits, and the Farm Credit System is as financially strong as it has ever been. Given the challenges facing farmers and ranchers today and the extraordinary capital requirements 

of this industry, our nation’s agricultural producers need the Farm 

Credit System and the commercial banking industry to be viable 

and strong. 

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The Farm Credit System, as you have heard this morning, is 

made up of 78 individually and cooperatively owned and governed 

institutions. All have separate boards of directors elected by their 

customer owners. There are no federal funds or taxpayer dollars 

appropriated for the ongoing operations of the Farm Credit System. 

As a cooperative, net income in Farm Credit goes to one of two 

places. It is either retained within the institution to build financial 

strength to serve customers or it is paid out to customers in the 

form of patronage dividends. As one of our directors wrote in a letter to a fellow customer this year, and I quote, ‘‘The board believes 

the cooperative lending system allows us to bring a unique and important value proposition to the market. We want stockholder capital to be held as close to the farm as possible,’’ unquote. That is 

the beauty of the Farm Credit System that Congress had the foresight to create in 1916. Farm Credit’s cooperative business model 

is fundamentally different by design. 

A healthy Farm Credit System and a healthy commercial banking industry bring greater stability and competition to the credit 

market. If we lose business to commercial banks, and we do, that 

means the lending market is working for producers. If we partner 

with a commercial bank to meet the credit needs of an enterprise 

serving rural America, and we do, that means the lending market 

is working for those communities. If a local bank cannot take on 

the risk of a beginning operation and refers a young farmer to 

Farm Credit, and it happens, that means the lending market is 

working for producers. 

We know that competition makes all of us in lending work hard 

each day to be more efficient and customer-centric. We focus our 

time and energy on better serving producers versus asking for the 

elimination of competitors. There is room in the market for both 

commercial banks and Farm Credit. Producers need us both. 

At Farm Credit Associations, we have been proactive in helping 

customers prepare for the challenges of the current cycle. We have 

counseled around the importance of working capital and have restructured debt where appropriate. We are committed to working 

with our customers through tough times. Strong earnings have allowed Farm Credit to build equally strong capital levels to protect 

against deterioration in loan quality. We have sophisticated stress 

testing procedures and are thoroughly examined by a federal regulator and issue transparent audited financial statements. The 

Farm Credit System does not pose a risk to U.S. taxpayers. In fact, 

the System has never been stronger. 

I personally take particular pride in the support we provide to 

our young and beginning and small producers. It is an important 

part of what we do every day. While some would have you believe 

that it is the sole reason we exist, our mission as spelled out by 

Congress is to serve all of agriculture, large, small, young, and old. 

In 2015 alone, the Farm Credit System made more than 62,000 

loans to young producers, 80,000 loans to beginning producers, and 

150,000 loans to small producers. 

Farm Credit’s mission also extends to supporting rural communities by financing vital infrastructure, helping bring clean water 

to rural families, reliable energy to farms and rural towns, and 

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modern high-speed telecommunications to connect rural America to 

the rest of the world. 

We also help finance entities that are similar to our directly eligible borrowers. As defined by Congress, these similar entity loans 

are always made in partnership with and at the invitation of commercial banks. 

In summary, I see farmers and ranchers working hard to adjust 

to the current decline in commodity prices and profits. They take 

enormous pride in what they do and many are trying to carve out 

a way for their sons and daughters to continue a family tradition. 

We are honored to serve agriculture producers, farmer-owned cooperatives, and rural infrastructure producers who own the Farm 

Credit System. They are the Farm Credit System. 

On behalf of our customer owners, we look forward to the next 

100 years of serving rural communities and agriculture. 

Mr. Chairman, I have a variety of statements with me from 

groups representing producers, farmer-owned cooperatives, and 

others that reinforce the importance of Farm Credit’s mission. I 

ask that those statements be made a part of the hearing record. 

[The following information can be found on pages 120 through 

169 in the appendix.] 

Senator STABENOW. Without objection. 

Mr. STARK. Thank you. I will be pleased to respond to your questions. 

[The prepared statement of Mr. Stark can be found on page 84 

in the appendix.] 

Senator STABENOW. Well, thank you very much, and I apologize 

for the back and forth today. I know you understand about the 

votes that are occurring and members having to try to be several 

places at once. But we very much appreciate all of your testimony 

and it is an important part of our deliberations going forward. 

I am pleased that I made it back in time to introduce Mr. Jed 

Welder, who, as I mentioned earlier, is taking time from a busy 

planting season to provide a producer perspective today. Mr. Welder served in both the U.S. Marine Corps and the U.S. Army and 

several tours in Afghanistan, Iraq, and Bosnia before returning to 

Greenville, Michigan, to start a farm with his wife, Milka, and two 

children, Daniella and Mirko. He is a proud alumnus of Central 

Michigan University, not far from where I grew up in Clare, and 

serves on the Inaugural Board of Directors for the Michigan Chapter of the Farmer Veteran Coalition. 

We thank you very much for joining us and look forward to your 

testimony. 

STATEMENT OF JED WELDER, OWNER, TRINITY FARMS, 

GREENVILLE, MICHIGAN 

Mr. WELDER. Thank you, Chairman Roberts and Ranking Member Stabenow, for the kind introduction, and thank you to all the 

members of the committee for this opportunity to testify today. 

I am the owner of Trinity Farms, a mid-size farm in Greenville, 

Michigan, where my family and I raise corn, soybeans, and recently 

began growing several acres of hops. Before returning home to 

Michigan to begin my career as a farmer, I had the honor of serving as an officer in the United States Army for more than a decade. 

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My service included tours in Iraq, Afghanistan, and Bosnia, serving 

as an armor officer with some of the greatest men and women in 

the world. 

In 2008, my wife and I made the difficult decision to leave the 

Army after repeated deployments and an ever increasing operational tempo. We wanted to start both a family and a farm back 

in Michigan. We loved moving to the country and enjoyed the challenges of this new profession, but we quickly realized we needed 

both land and capital to be able to farm full time. 

Farmers are a close knit group. You cannot just Google how to 

do things. You actually ask mentors and experienced farmers in 

the area what has worked on their farms. When I asked older 

farmers in West Michigan about access to credit, they told me that 

years ago, I would have gone to a local bank and taken out an operating loan, but that banks do not do that anymore. Even a small 

farm requires hundreds of thousands of dollars in seed, fertilizer, 

and fuel each year to operate. My small farm uses older equipment, 

but even that cost more than a mortgage most local banks would 

handle. 

There was a GreenStone Farm Credit Services office in my county that was recommended by several farmers, so I prepared a business plan and walked through their door. They understood what I 

wanted to do and what I needed to run my operation. They made 

good, solid recommendations and over time became a trusted partner. As my business changed and grew, they grew with me. 

Today, I farm more than 800 acres of land and have been able 

to continue farming land my folks had farmed since the 1960s. This 

summer, as I was building a grain drying and storage system, my 

loan officer came out to see the progress and talk about it with me. 

We constructed one of the first hop yards in our county. As we did, 

GreenStone walked through the yard to see what hops were. Their 

office is 20 minutes away. They know how the crops in our area 

look and what the prospects for harvest are because they are in the 

business of working with farmers. 

Last fall, an Army buddy contacted me because she wanted to 

buy land near my farm. She had talked to several banks, but she 

worked in Texas at the time and wanted to buy farmland near her 

family in Michigan. Every bank she talked to told her, ‘‘We do not 

do that anymore.’’ When I put her in contact with my GreenStone 

office, they told her, ‘‘That is what we do.’’ She ended up purchasing the land, and last Friday, my daughter and I planted that 

farm to corn. This fall, when we harvest that crop, this veteran will 

realize her dream of owning farmland even as my family expands 

its own operation. 

This is a challenging time for farmers like me across the country. 

Right now, we are planting corn and soybeans with prices very 

near break even. Many of us have second full-time jobs just to provide enough income to stay on the farm. 

There is an exciting revolution in precision agriculture and technology that will help us be more efficient, but at the same time, 

the costs of farming increase every year. Please understand, farmers, like veterans, are not victims. We are not looking for a free 

ride, just a fair deal. Having a lender that works with me, that 

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knows my farm and the challenges I face is more important than 

ever. 

There is an old saying on the farm, ‘‘If it ain’t broke, don’t fix 

it.’’ The Farm Credit System is not broken. It is fulfilling its mission to serve farmers like me. Please do not break it now. 

I would like to leave you with some idea of how important this 

issue is to me. We are currently in the middle of planting season 

of our major crops. Michigan farmers have a very short window of 

time after the last frost to get our seeds planted for maximum 

yield. Families learn that there are no after-school activities, trips, 

or days off until the crops are in. That being said, when I had the 

opportunity to testify before this committee, I parked my equipment and came out here to appear before you today because this 

is important to my family and the families of all farmers. 

Thank you, and I would be happy to answer any questions you 

might have. 

[The prepared statement of Mr. Welder can be found on page 101 

in the appendix.] 

Senator STABENOW. Well, thank you very much again, and thank 

you to all of you. 

Let me start, Mr. Welder, if you could tell us a little bit more 

about how GreenStone Farm Credit has helped you both in looking 

to expand operations, even diversifying your farm. We talked earlier how hops is a growing new industry in Michigan, and I know 

across the country, but talk a little bit more about GreenStone 

Farm Credit and their role in helping you be able to do that. 

Mr. WELDER. Yes, ma’am. GreenStone has provided some educational things and allowed producers to use their facilities for getting together for conferences. They have also provided—my local 

loan officer has provided input as we talked about expanding our 

business to doing custom work for other farmers. As we look to increase and purchase new equipment, they have worked with us and 

provided suggestions. When we traded in my 37-year-old combine 

two years ago and bought a slightly newer piece of equipment, that 

was something that we financed through GreenStone. They have 

been with us every step of the way. 

Michigan is on the cutting edge of a new crop with hops. Hops 

is something entirely new, so it was gratifying to me when they 

came out and actually walked through the yard and took a look 

and learned what they were and knew what the challenges were 

that we face with this new industry. 

Senator STABENOW. Thank you. 

I am wondering—let me ask you and then anyone else on the 

panel that wants to respond—because in 2014 in the farm bill, we 

created several new opportunities for veterans coming home to either go back to the farm or to go into farming, including support 

for the new and beginning farmer and rancher development programs. In 2015, the National Farmer Veteran Coalition received 

funds from the farm bill to expand agriculture production, development, business development skills, and so on. 

Mr. Welder, you are a board member of the Michigan Chapter of 

the Farmer Veteran Coalition. Can you describe some of the ways 

that the Coalition is working to support our military veterans in 

Michigan. 

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Mr. WELDER. Yes, ma’am. The Michigan Chapter of the Farmer 

Veterans Coalition is in its first year and it is very exciting what 

we are doing, working with veterans in all different areas of agriculture. I have got friends that I have developed through the Michigan Farmer Veteran Coalition that are raising grass-fed pigs, that 

are working in poultry, that are raising crops, that are raising row 

crops all across the state. 

The Farmer Veteran Coalition is working to provide grants as 

well as educational opportunities in both the Upper and Lower Peninsula. We just held, in cooperation with the NRCS, a soil conservation class. We have also had grant writing classes that we 

have held with veterans who want to become farmers. Some of the 

best friends and peers I have in agriculture now are through the 

Farmer Veteran Coalition. 

Senator STABENOW. Thank you. 

Would anybody else want to respond to any programs or initiatives or benefits, either working with veteran farmers or veterans 

anywhere working in the food system? 

Mr. STARK. Senator, I would just add simply that we have supported the efforts that you just described and were just described 

here, both financially and with our resources personally. As you 

may recall, last summer, the Farm Credit System helped sponsor 

here in Washington a Homegrown by Heroes event, so we are really trying to feature the products that are raised by our veterans 

and make them more visible to the general public so they can be 

featured and distributed and help them be successful. Thank you. 

Senator STABENOW. Great. 

Mr. BARKER. Ranking Member Stabenow, I just want to add that 

we do not have special programs for our veterans because we have 

honored them our entire careers in the community banking industry, and that would include rate concessions, some terms that 

maybe would be unusual in a normal situation, to try and stimulate their success. 

I appreciate Mr. Welder’s Farm Credit Office up there. He 

sounds just like a community banker that I know. 

[Laughter.] 

Senator STABENOW. All right. Well, let me ask, and again, I will 

start with Mr. Stark, of course, the 2014 farm bill made a number 

of reforms to the farm safety net. We strengthened and expanded 

crop insurance, particularly for specialty crops, and hops is one of 

those new specialty crops. I think as we expand, it will be interesting to see what other opportunities there are. Also to provide incentives for beginning farmers. 

When producers approach your institution for loans, how do you 

take these safety net programs into account, and how important 

are things like crop insurance, particularly for beginning farmers, 

when you are looking at potential borrowers? 

Mr. STARK. Yeah, that has been a key topic of focus of both this 

committee and of Congress here through these last couple years. 

We are very pleased to get a farm bill last year that included a 

strong crop insurance program, and I certainly think this is one 

thing that the banks and ourselves can agree upon. It is vitally important to the producers up there, and particularly the feature that 

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has revenue coverage for many of these producers because that 

really is a critical issue we have out here. 

Most of the producers in the marketplace today carry some level 

of crop insurance. They make their own choices around that. Certainly, we take that into strong consideration, and especially so if 

they would decide not to consider it. In that case, we would require 

significant improvements in liquidity in order to continue their financing. 

For young producers, it is essential and we counsel them a lot 

regarding the level of coverage that they might carry and the risk 

that they have the capacity to undertake, primarily as a result of 

the fact that most of them do not have working capital if, in fact, 

something should happen to their crop production year. 

Thank you for your support of crop insurance and we would appreciate that continuing support as we go forward. 

Senator STABENOW. Well, I think as we have moved from subsidies to risk management through crop insurance as well as conservation practices and other risk management tools, I think it is 

really important that we keep a strong system. I am also anxious 

to see as we go forward how the opportunities we have created 

through fruit and vegetable growers, specialty crops, whole farm 

policy for small growers, small farmers and so on, how we can continue to expand those opportunities for small as well as large farms 

so that they have that risk management tool. I think that is really 

important. 

Let me ask—— 

Mr. WOLFE. Senator, could I—— 

Senator STABENOW. Yes, sir. 

Mr. WOLFE. Could I respond to that, as well? 

Senator STABENOW. Yes, please. 

Mr. WOLFE. Okay. The first panel was asked, what are some of 

the differences in going into a potential crisis, this farm crisis—— 

Senator STABENOW. Right. 

Mr. WOLFE. —this time as compared to the 1980s. I became a 

banker in 1979. That was my first experience, was to experience 

the 1980s as an ag lender. But, that is one of the primary differences. I mean, there are some real differences. I think the producers are much higher capitalized and lower leveraged than they 

were going into the 1980s. The Farm Credit System is higher capitalized. The community banks are higher capitalized going into 

this. 

But one of the real fundamental differences is crop insurance. In 

the 1980s, probably less than five percent of all crops were insured 

in the United States. That number is reversed now and there is 95 

percent that are and that makes a huge difference not only for our 

industry, but for the producers, to ensure that they will be around 

for the next season. We do thank you for that and it is a very critical part of what we do. Thank you. 

Senator STABENOW. Well, I appreciate that. As we go forward, 

and I hate to start talking about the next farm bill—I get a headache thinking about all the challenges we have—— 

[Laughter.] 

Senator STABENOW. —but this is going to be a very important debate. We are going to need your voices here as we are talking about 

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the increased importance of crop insurance as a critical risk management tool. 

Mr. Wolfe and Mr. Barker, I wonder if you might talk just a little 

bit more, and I apologize, I was not here for your testimony, but 

describe the work of your institutions to support the rural food and 

agriculture businesses, not just farmers, but more broadly, sort of 

rural communities, food industry, and so on. Could you talk a little 

bit more about that. 

Mr. BARKER. Locally, we have a lot of growers in the farmers 

market category. Those markets are very popular in the State of 

Iowa in our area. We have converted many producers to organic 

production, and in doing so made those some trying times. They 

are not profitable at first. It takes several years to get to the level 

where they are sustainable as organic farmers. 

Some of the challenges that we face come from other states. I 

was involved in an egg production facility and the laws in California required that chickens needed more space in their cages. If 

they were familiar with agriculture, they would realize that the 

more space a chicken has, the more violent they get with each 

other and these laws are actually hurting those chickens. Also, it 

created a much more expensive operation. Those are some of the 

challenges we are facing now. We have had to loan more money to 

that facility to increase their buildings and their capacity to 

produce. 

Senator STABENOW. Thank you. 

Yes, Mr. Wolfe, did you want to respond? 

Mr. WOLFE. Yes, just quickly. We are located in north central, 

northeastern Kansas and we are in that transition between plains 

and good dark farm ground. We have wheat as a primary row crop 

in the western part of our trade area and that transitions to corn, 

soybeans. We also have a lot of dairies, hog operations, beef cattle. 

We are very diversified. We have been—well, we are the largest ag 

lender in Kansas. I mean, that is not all that large. It probably 

ranks number 50 in the United States. But, we do our part to take 

care of our local producers. We have been around for a long time 

and we relish the opportunity, even in the down times, to be there 

for our customers. 

Senator STABENOW. Thank you very much. 

I am going to step away to vote, and Senator Thune just came 

in. I am going to pass the entire power of the Senate Agriculture, 

Nutrition, and Forestry Committee. 

[Laughter.] 

Senator STABENOW. I am a little nervous about this, but I would 

be happy to pass it to the Senator from South Dakota. 

Senator THUNE. [Presiding.] Well, thank you, Madam Chair. 

It is kind of a crazy day, and I would have liked to have been 

here to ask questions earlier of the previous panel, but we had the 

Administrator of the TSA up here to talk about wait lines at airports, so I was chairing that meeting. But, I appreciate the update 

today on what is going on in agriculture and particularly with regard to lending. 

I do want to include for the record, and since I am the only one 

here, I will say this will be included without objection—— 

[Laughter.] 

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Senator THUNE. —a story from the Mitchell Daily Republic in 

which it talks about a study that looked at farm income. I know 

it has already been mentioned a couple of times today, but at least 

in my state, in 2015, we saw it drop by $100,000, on average, last 

year, which is a 77 percent decline in net profit in 2015 compared 

to the year before. It goes on and elaborates and gets down into the 

specifics and drills down into the numbers a little bit about what 

that means in terms of our economy. 

But, I think it just puts a fine point on how important it is that 

we are really focused on agriculture and making sure that we do 

everything we can to get our producers through what are some 

pretty difficult economic times and, hopefully, on to when we get 

a better price structure. 

[The information of Senator Thune can be found on page 53 in 

the appendix.] 

Senator THUNE. I know that we are planting in South Dakota, 

some of it is in, some of it is still going in, but we are hoping for 

a big crop. We need a big crop at the prices that we are dealing 

with today. But, I would be curious to know just from the lenders’ 

standpoint, I know that, for example, Mr. Barker, you have got a 

smaller scale community bank with a portfolio of 35 percent agricultural loans. Could you talk a little bit about what your greatest 

challenge is today in terms of looking at the outlook for your agricultural borrowers. 

Mr. BARKER. As far as our borrowers, our biggest challenge is the 

cash flow coming in. We are in times where most of our borrowers 

have equity to survive a year or two. Going forward, this equity is 

being used up with the low prices. With production roughly a dollar 

below cost of their sales prices on both corn and beans, it does not 

take long if they have any size at all for their equity to get used 

up. 

We are going to need the USDA programs. The USDA guaranteed Farm Loans and Rural Development Loans are very important 

and we ask the Senate to really beef up funding for the programs 

because we really will need guarantees going forward to keep producers in business. Patience by our regulators is a virtue. Many examiners were not around in the 1980s when we went through the 

last ag credit crisis. They are young and they are being told that 

this is perhaps a panic situation and patience will be a virtue in 

dealing with all of this. 

Senator THUNE. I would direct this to you and others on the 

panel, as well, but do you believe that your banks and other ABA 

banks coordinate more closely with the USDA Farm Service Agency 

than does FCS to obtain guaranteed loans for some of those eligible 

borrowers? 

Mr. BARKER. Well, from my personal experience, the banking 

community does. In fact, I have had a few local small borrowers 

come to us because their credit was shut off by the Farm Credit 

System. We have tried to look at getting a guarantee for those 

folks. But, our experience is that the loyalty has been to the larger 

borrowers by the Farm Credit Services and the smaller folks in our 

area, were not taken care of as well, because their farms require 

a lot of lender involvement. It is easier to book a $1 to $5 million 

loan than a YBS loan. 

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Senator THUNE. Do any of you have examples of how the Farm 

Credit System neglects young, beginning, and small farmers and 

ranchers in your area? 

Mr. BARKER. Personally, I do not see the Farm Credit System 

serving YBS farms. I know they talk about that, but I have a report from 2014, which shows the numbers of those young, beginning, small farmers are quite stagnant. One of the footnotes I 

thought ironic was if they qualify under each of those categories, 

they can be counted under each of those categories, so I am not 

sure how the numbers make any sense. I know in theory, that FCA 

would like to count these numbers at the regional levels, but on the 

local level, I just do not see FCS lending to YBS farmers. 

[The following information can be found on page 173 in the appendix.] 

Senator THUNE. Mr. Welder, you are a farm operator. When you 

are talking to other local farmers, have you noticed competition in 

ag lending driving down interest rates for borrowers? Have you 

seen any evidence of that? 

Mr. WELDER. From my perspective in my very small operation, 

I have not seen that, Senator. We are getting competition from 

other large corporate farms that maybe have other lending resources. But at my level, no, not at all. The interest rates are staying pretty much constant for what we need to do for our operating 

loans, for our machinery loans. 

Senator THUNE. From your perspective, to what extent do private 

banks, commercial banks, Farm Credit System, and FSA play a 

role in ensuring that credit exists for borrowers out there? How do 

you see that interaction working between the different entities? 

Mr. WELDER. Again, I can only give a very micro perspective at 

my level, but the banks in my area do not deal with farmers as 

much other than checking and savings. The last farmer that had 

an operating loan with our very local Sidney Bank was my dad 20 

years ago. At this point, because with 800 to 1,000 acres he might 

be talking a quarter-million dollar loan for an operating loan, most 

of that will go through the Farm Credit System as opposed to going 

through a banking system. 

Senator THUNE. Okay. Mr. Barker, would you say your bank is 

consistently more competitive with loan rates and loan availability 

to, particularly as we talked about earlier, some of the younger, 

smaller, newer borrowers? 

Mr. BARKER. We compete as much as we can. I cannot compete 

with the Farm Credit System on large loans. They have a funding 

structure that is very enviable. For example, on a million dollar 

loan, if I charge five percent, that is $50,000 in interest annually. 

I pay my 40 percent tax bill out of that. I net $30,000. The Farm 

Credit System is largely tax exempt, and they need only charge 

three percent on that same loan to net the same. They also do not 

have to charge appraisal fees, which I have to do, and there are 

other local fees in some states that they do not pay. 

We try to stay competitive as much as we can and make use of 

anything we can as far as Federal Home Loan borrowings or deposits, but I just cannot seem to touch the whole array of benefits that 

the Farm Credit System has. 

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Senator THUNE. You indicate in your testimony that 14 percent of your portfolio consists of loans ranging from $1,000 to $249,000, 

which is 76 percent of your portfolio by total number of borrowers. 

Since many of these are likely young, beginning, and small farmers 

and ranchers, do you believe that your portfolio of borrowers, assuming that we have the present state of circumstances in agriculture for the next couple of years, is going to be negatively impacted, much more so than the larger scale type borrowers that you 

have in your portfolio? 

Mr. BARKER. I think they will be hit harder quicker than the 

larger farmers, yes, because they have not had a chance to build 

up the equity that the larger farmers have. 

Mr. WOLFE. Senator, could I respond to that, just quickly? 

Senator THUNE. Yes, Mr. Wolfe. 

Mr. WOLFE. Yeah. Mr. Welder brings up a great point, because 

his area is what I foresee if we continue to go down the same path 

that we are going, that the local banks cannot compete any longer, 

so they have given that market share away. They have given it 

away. They have quit competing. That is, I am afraid, where we 

are heading. 

Just to give you an example, Mr. Barker used a similar example 

in Iowa, but in my state, I pay 34 percent federal income tax and 

4.38 percent state income tax. As Mr. Barker says, on a five percent loan, they can charge three-and-a-quarter and start out the 

same place we do. My point is that when we go down that path, 

is that Farm Credit is not passing—if I were a borrower of Farm 

Credit today, I would be angry that they are not passing that entire savings along to them, because they could have been fully 

taxed like a C Corp bank in America would be and they would still 

make more money than banks would the last two years. That is the 

point that I would like to make. 

Senator THUNE. Okay, thanks. 

Mr. Stark, it looks like you want to—— 

Mr. STARK. Thank you. I would be delighted to respond to those 

comments. It is really unfortunate and disappointing to hear the 

allegations against a system which so many farmer-owned customers support and feel so strongly about. One thing I can say 

when it boils all down to the bottom line is what has been laid out 

here this morning is irrespective of our business structures, when 

it gets down to the bottom line, the fact of the matter is we are 

just different business models, and that is clearly, as I mentioned 

in my opening remarks, that was intended. 

As a farmer-owned cooperative, we have a very different business 

structure. Frankly, community banks enjoy some of the same, or 

maybe I should say similar accesses and backing by the federal 

government that the Farm Credit System does in the forms of Federal Deposit Insurance, the access to the GSE through the Farmer 

Mac and the Federal Home Loan Bank. They have access to Subchapter S Corporations. I mean, we could compare and contrast our 

business models for hours here today. 

The bottom line is, when you look at it over the last 50 years, 

community banks and commercial banks have 40 percent market 

share. We have 40 percent market share. By the testimony that 

was submitted here this morning, our colleague here, Mr. Barker, 

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indicated they have over half of the farm loans in their community. 

If you look at the data they presented even in their own testimony, 

they grew 7.9 percent last year. We grew 8.5 percent. 

When you look at the facts, there is no evidence to indicate that 

the pendulum has really swung in favor of the Farm Credit System. Thank you for the opportunity to comment. 

Senator THUNE. I appreciate that. Thanks, Mr. Stark. 

Mr. BARKER. Could I rebut that just a bit? Sorry, Mr. Stark. 

There are a lot of GSEs out there, but I do not have any of the 

GSEs that directly compete with me and try to steal my loans. 

When we are not allowed to make a $5 million real estate loan, for 

example, that is a big part of my loan portfolio that goes to the 

Farm Credit System, no matter what my bank may obtain in terms 

of small loans. There is just no way to compete. My rates to large 

farmers will be undercut no matter what rate I have quoted, and 

I am sure every community banker in the nation can say the same 

thing, that FCS rates just are not the same as those of the private 

sector. 

The young farmer that comes in that has a quote from the Farm 

Credit Services gets a rate that is higher. They might get a rate 

that is six or eight percent compared to the three percent rate FCS 

gives large farmers. Does that really mean that they are taking 

care of those YBS farmers? When I price a loan to a YBS farmer, 

it is the same whether they are a multi-million dollar farmer or 

they are a young farmer that is really struggling and trying to 

start their farm. We are going to help them no matter what. But 

we do not get market distorting competition from the other GSEs 

as we do from the FCS. 

Senator THUNE. Mr. Chairman, I would just say, and I appreciate you having this hearing because I think it is an important 

one and it is an issue that we need to pay close attention to, particularly over the next couple of years, because I think in production agriculture, if we do not see some improvement in the prices 

of our commodities, we are going to have more and more stress and 

there is going to be a real need on behalf of the lending community 

to be able to work with borrowers and figure out ways to get them 

through. 

I am particularly concerned about the young, beginning, and 

small borrowers and what this means for them, people who perhaps are not as established or do not own their ground and are 

making cash rent payments, those sorts of things. It is going to be 

increasingly, I think, difficult given the current price structure, 

which I said I hope improves, but I think that availability of credit 

and being able to work with—and having all the various people 

who represent that community here today, I think, is really good, 

too, because it gives us an opportunity to explore a little bit more 

in detail what the various dynamics and who is lending to whom 

and where sort of the weak spots are. 

If there is anything this committee can do in the days and weeks 

and months ahead, I hope that you all will communicate that to us, 

as well, because we want to make sure that we are being as responsive as possible when it comes to availability of credit for agriculture. 

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Mr. Chairman, I thank you, and I thank our panelists today for 

being here. 

Chairman ROBERTS. [Presiding.] Senator Thune, thank you for 

that excellent statement. I share your concern with new, young— 

what was the other group? 

Senator THUNE. Small, beginning. 

Chairman ROBERTS. Oh, beginning. I am concerned about the 

older, established, and big producers who produce most of the food 

for this country as well as everybody else. 

There is another vote pending, I would tell the gentleman, very 

quickly, in about ten minutes here, so we are going to have to adjourn this hearing. 

I have a question for the three lenders on the panel. Your answer, of course, is if this does not occur, the question that I am asking, we will be writing the sequel to the Grapes of Wrath in farm 

country. 

When you are considering whether or not to issue a farm loan, 

how important is the role of the federal crop insurance program? 

Let us just go down the line. Mr. Barker. 

Mr. BARKER. Yes, sir. It is extremely important. It is just absolutely critical to the survival of the farmers out there and their stability. 

Chairman ROBERTS. Mr. Stark. 

Mr. STARK. Well, we totally agree and we thank the committee 

and your support, Mr. Chairman, and what you have done to get 

the last farm bill through as well as the provisions of the crop insurance program. It is imperative for this industry as we go forward. 

Chairman ROBERTS. I thank you, sir. 

Mr. Welder. 

Mr. WELDER. As a producer, I maintain crop insurance, as do 

most of my peers. It is an important role as we move from a subsidy-based to a more market-based to stay with that crop insurance 

and I thank you for your support, sir. 

Chairman ROBERTS. If you were in the service that was always 

faithful, Semper Fi—— 

Mr. WELDER. Oorah. 

Chairman ROBERTS. —and then chose to go Army Strong—— 

Mr. WELDER. Yes, sir. 

Chairman ROBERTS. —you could be strong, but I am not sure always faithful. 

[Laughter.] 

Chairman ROBERTS. Why on earth did you switch? 

Mr. WELDER. Sir, I was offered an Army ROTC scholarship and 

I did not have money for college and they said I could jump out 

of perfectly good airplanes, so I took them up on it. 

Chairman ROBERTS. Well put. 

[Laughter.] 

Chairman ROBERTS. Leonard. 

Mr. WOLFE. Yes. I talked about this earlier, but a question was 

asked of the first panel, some of the major differences as we head 

into what potentially could be a downturn in ag and the differences 

compared to the 1980s. The primary difference in as far as the producer protection is crop insurance. In the 1980s, I saw statistics 

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that said that less than five percent—I was there, you were there— 

less than five percent of all crops were insured at that time. Today, 

that number is reversed. It is now 95 percent, and it is possible because of actions that this committee and you specifically have 

taken. 

I think that is going to be paramount going into any downturn, 

whether this is it or not. Our regulators have been predicting this 

for seven years, so if it finally happens, I think they are taking a 

certain level of glee from that. But, we are ready for it and crop 

insurance is one of the things that has prepared us for this if this 

does occur. Thank you. 

Chairman ROBERTS. I appreciate your answer. It is what it is. 

Every time—we are now doing our appropriation bills, which is a 

very good thing. We are going back to constitutionally Congressionally directed funding and that is a good thing, and we are doing 

it at a record pace. But when you open up the ag appropriation bill, 

we always have self-declared Secretaries of Agriculture wanting to 

change something and crop insurance is usually a target. Each one 

of you and every one of your organizations has a pretty loud megaphone and the value of crop insurance today means whether you 

make it or not, more especially with all of the climate change that 

we are experiencing. 

Let me just ask all of you, I note the somewhat differences of 

opinion with regards to what the Farm Credit System has at its 

disposal as opposed to what our community banks have, more especially with Dodd-Frank, which was not especially—Dodd-Frank was 

not supposed to touch you. It was a big mess. Obviously, it is—I 

do not know whether it is a touch or a massage or what it is, but 

it is not good. 

If, especially the three folks here that are representing our community banks, if there is one piece of legislation that could address 

your concerns, and that would probably fall to the Finance Committee—I happen to be on the Finance Committee—but what 

would that be? Let me start with you, Mr. Barker. I know that you 

want a whole series of things, but what is the one thing that we 

could do to make your life easier? 

Mr. BARKER. Boy, that list is endless. Dodd-Frank is a huge 

thing for us right now and I think our topic here today is a really 

big concern for me locally and for all the community banks having 

the unlevel competion from the Farm Credit System. But, both of 

those topics are extremely important to us right now. Dodd-Frank 

and overregulation is causing a heavy burden on community banks, 

sorry. 

Chairman ROBERTS. Do not be sorry. I agree with you. Quite a 

few people would now agree with you. 

Mr. Stark, we are going to give you an opportunity, too. I do not 

want to leave you out. 

Mr. STARK. Yeah. I think, even though we are not subject to the 

same regulatory impact as the counterparts here under DoddFrank, the Farm Credit System does whatever it can to comply 

with the spirit of those laws because they, in most part, make good 

financial sense. The first panel talked about that specifically with 

regard to the credit, or the capital requirements, and the Farm 

Credit System and through the FCA has adopted the regulatory 

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guidance under Basel III and implemented new capital requirements. 

Nonetheless, the answer to your question is a continuation of the 

crop insurance program would be first and foremost. As we are a 

farmer-owned cooperative, we are here on behalf of our farmer 

owners and that is first and foremost on their minds. Consistency 

and predictability around their businesses in this time of volatility 

is as critical as we could imagine, and that will do more than anything. 

The second would be trade. As you well know and we have talked 

about, that is a critical item for our producers, and depending on 

commodity, a majority of their, or a big majority of crops or a big 

percentage of crops in almost all our segments is traded overseas. 

U.S. production agriculture is extremely efficient and we need 

trade on behalf of our producers’ customers. 

Chairman ROBERTS. I thank you for your comments on trade, 

more especially TTIP and TPP. Today, unfortunately—well, it has 

just been this way as long as I have had the privilege. All trade 

agreements are over-criticized. All trade agreements are oversold. 

But, they are absolutely essential and I thank you for that. 

Let us just keep going down the line. Mr. Welder. 

Mr. WELDER. Senator, the one thing from my perspective would 

be certainty. Farmers do not like change and we certainly do not 

like change from Washington if we can help it. When we go to our 

local FSA office and ask about the farm bill or what is upcoming 

for crop insurance, generally, they have no idea. The more certainty we can have at my level for the farm bill and for crop insurance, the better off we are going to be. 

Chairman ROBERTS. Let me just interrupt by saying that we are 

not going to open up the farm bill, period. You will have that stability, whether you have preferences or not, more especially the 

ARC program, the PLC program, and more especially crop insurance. I am not saying that it’s going to be an easy job, because 

there are always folks that want to do that. But providing consistency and stability, I think, is paramount. 

Leonard, what do you think? 

Mr. WOLFE. Well, since you cannot do anything about the weather, because that is the biggest variable in agriculture—— 

Chairman ROBERTS. I brought you the rain, man. What else do 

you want? 

Mr. WOLFE. You did, and now you need to make it stop. 

[Laughter.] 

Chairman ROBERTS. Okay. 

Mr. WOLFE. Dodd-Frank is just a monster hanging over community banks today. I mean, it is threatening our model. A lot of 

things threaten our model, but as Mr. Barker says, frankly, in my 

bank, the biggest threat to me, seriously, is Farm Credit. If we 

could somehow—Mr. Welder mentioned a fair deal. That is all he 

is looking for, is a fair deal. If we could just get to the point—and 

I am not talking—there is a real misconception that banks want 

to eliminate the Farm Credit System. No, that is not correct. That 

is not—I am not an advocate of that. We have to coexist. We have 

to find a way to do that. 

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I think the—it is funny that you mention appropriations, because 

I have to take this opportunity to talk a little bit about last fall 

when we used a tax on banks to pay for the highway bill. We have 

something right here hanging in front of us that is a $1.3 billion 

tax preferential treatment that is given to Farm Credit that could 

be used to pay for this—some other critical elements of agriculture, 

which is crop insurance, things of that nature. This can be done a 

lot of different ways, but there is more than one way to do this. 

Rather than tax them, we could also eliminate taxes on all agricultural real estate loans, whether they are originated by banks, by 

individuals, by insurance companies, or even Farm Credit. Just you 

could level the playing field in that way. 

We all have different models. Even banks have much different 

models, as Mr. Stark points out. We recognize the difference between us and the Farm Credit, but there are a great deal of differences across the board, so thanks for the opportunity. 

Chairman ROBERTS. I want to thank all seven of our witnesses. 

My staff has informed me I have four minutes to skedaddle over 

there and make the final vote. But thank you for taking your time 

and your willingness to testify here. I know you are very busy people. The testimony provided is timely, very valuable for my fellow 

lawmakers to hear firsthand. 

To my colleagues who may not have heard it the first time, I 

would ask that any additional questions that they may have be 

submitted for the record, submitted to the committee clerk five 

business days from today, or by 5:00 p.m. next Thursday, May 26. 

Now, Mr. Barker, I have to say that Senator Grassley, my senior 

colleague, basically his question was with regard to Dodd-Frank, 

and I think you have covered it. 

Mr. BARKER. Yes, sir. 

Chairman ROBERTS. I want the record to show that I have asked 

the question—— 

[Laughter.] 

Chairman ROBERTS. There was a very timely response, more especially from his constituent. 

With that, the committee stands adjourned. Thank you. 

[Whereupon, at 12:45 p.m., the committee was adjourned.] 

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