Remarks by

The Honorable Kenneth A. Spearman

Board Chairman and CEO, Farm Credit Administration

Farm Credit Council Annual Meeting

Washington, D.C.

February 2, 2016

Good morning. Thank you so much for the opportunity to speak to you today. I am privileged to

recognize my two Board colleagues, Dallas Tonsager and Jeff Hall, as well as FCA senior staff

who are here. 

It is always a pleasure for me to meet with representatives of the Farm Credit System. And I must 

say it’s a particular honor to address the Farm Credit Council in 2016 — the year you celebrate 

the centennial of the Farm Credit System.

The idea of the System sprang from a noble objective: to ensure the success of American farmers 

and ranchers for generations. As the Farm Credit Act states, Congress recognized that “a 

prosperous, productive agriculture is essential to a free nation.” Based on the findings of 

commissions that had studied the agricultural success stories of other nations, Congress 

concluded that our nation needed a cooperative system to deliver affordable, dependable 

financing for farmers and ranchers.

History does not always smile on the decisions of our leaders, but I am happy to say that in this 

case it does. Today, thanks in no small part to the system of agricultural credit that Congress 

established in 1916, the United States is one of the biggest agricultural producers in the world. 

The productivity of our agricultural industry provides food security for our own country and helps 

meet the food needs of many other countries, as well.

Our agricultural industry also strengthens our general economy. The United States is one of the 

world’s top exporters of agricultural products. Since 1960, we have exported more farm products 

than we have imported, and these exports help offset deficits in nonagricultural trade. 

Today, the System provides approximately 45 percent of all farm credit. And although we 

occasionally hear critics claim that the Farm Credit System is no longer relevant, I was heartened 

to find that Congress continues to recognize our need for the System and its mission. At the 

hearing at which I testified late last year, several members of Congress expressed their 

appreciation for the important role that the System continues to play.

So here we are: 100 years after the Federal Farm Loan Act was signed. How strong is the System 

today? Let’s look at just a few indicators.

As of Sept. 30, 2015, the System had $227 billion in gross loans and $292 billion in total assets. 

Its total capital was nearly $49 billion, its net income was $3.5 billion, and it had 183 days of 

liquidity. Nonperforming assets accounted for less than 1 percent of all loans. 

These are impressive numbers. They show that the System is strong — that it’s well prepared to 

withstand challenges. And, as we are all aware, there definitely are some challenges on the 

horizon.
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Prices for grain and oilseed have declined significantly from the highs of 2010 to 2012, and these 

lower prices may last several years. Some producers may be unable to cover their production 

costs.

And there are other economic factors that will likely compound the challenge of lower commodity 

prices. Late last year, the Federal Reserve raised interest rates for the first time in several years, 

and the Fed is expected to continue to raise interest rates gradually over the long term. 

Then there’s the challenge of currency value. In comparison with the currencies of our trading 

partners, the dollar is strong, and economists expect it to remain strong for a while. This will make 

it more difficult for American farmers to sell their products abroad. For producers who rely heavily 

on export markets, this will present a particular challenge.

Other economic forces will create challenges for U.S. farm exports. During the recent period of 

high grain and soybean prices, global production of these commodities increased significantly. 

Also, for the past three years, American farmers have had large harvests. Increased world 

production and strong yields at home have pushed crop prices down. The decline in world 

economic growth will add to the problem by decreasing demand for U.S. exports.

Noneconomic forces also come into play. Because of concerns about avian flu outbreaks in the 

United States last year, several nations have banned U.S. poultry imports. And the politically 

motivated import ban that Russia imposed on the United States has further depressed livestock 

exports. 

Although exports have greatly increased the market opportunities for U.S. farmers, our reliance on 

them has added one more factor to the list of things farmers — and farm lenders — must consider 

when evaluating risk. 

And let’s not forget the risks that extreme weather events and changing weather patterns can 

pose for the farm economy. For the past four years, we have seen the serious effects of drought 

and water shortage on producers in California.

All of these factors — lower commodity prices, higher interest rates, a strong dollar, reduced 

exports, and bad weather — will place downward pressure on farm income. According to a report 

from last November, USDA estimates that net farm income declined by 38.2 percent in 2015. Not 

only will this likely affect the ability of some borrowers to repay their loans, it will also continue the

downward pressure on collateral values. When farm income declines, farmland value is usually 

not far behind. 

In fact, we’re already seeing a correction in farmland values in the Midwest. With weaker farm 

incomes and rising interest rates, farmland prices there could decline 25 to 30 percent over the 

next several years. 

Our economists also project that the broader rural economy will struggle over the next few years

— both because of lower farm incomes and the continued migration of rural residents to urban 

areas. This will put pressure on the tax base of rural government and the customer base of rural 

utilities. It may also increase stress on farmers who rely on nonfarm income to pay off their loans. 

This is a daunting list of challenges — even for folks like farmers and farm lenders, who are long 

accustomed to volatility. It will require great vigilance. Today it is more important than ever to 

identify and mitigate risk in your loan portfolio, especially in vulnerable sectors of the farm 

economy. Because of the declines in farmland value and chattels, you will also have to watch 
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carefully for collateral risk. We, too, will be vigilant. We will closely follow developments in the farm 

economy, and we will watch for problems at both the institution level and Systemwide.

But I have every confidence that the Farm Credit System will overcome every single challenge. 

Why? Because you have 100 years of experience to back you up. And that includes the 1980s, 

which was a baptism by fire for producers and lenders alike. From this experience, you learned 

many lessons, including the importance of prudent lending practices and active portfolio 

management strategies. 

But of course farmers, ranchers, and the Farm Credit System need to do more than just overcome 

challenges. You have to find ways to thrive, to take advantage of opportunities to grow. Here too, 

both farmers and the Farm Credit System, have excellent track records. 

In the past, when it seemed agriculture’s only path forward was large production farms and 

ranches, you were there to provide financing to purchase the additional acres, the bigger 

equipment, and the more sophisticated inputs they needed to grow. 

Now, because of consumer demand for organic and locally produced foods, additional paths have

opened up, bringing more opportunities to young, beginning, and small farmers. And I’m pleased 

to see that many of you, in addition to continuing to serve your larger borrowers, are working hard 

to find ways to serve the needs of these other producers, including those in urban areas. I 

commend you for this.

Last summer, I visited a small, organic, urban operation in Austin, Texas. It started out as a 

garden in a family’s backyard. With the hard work of the farmer and funding from the Farm Credit 

System, this backyard garden has grown into a community-supported agriculture operation that 

provides organic vegetables to hundreds of Austin families. This operation supplies produce to 

Whole Foods grocery stores and local restaurants, and it has expanded to other Texas cities like 

Dallas and San Antonio. By providing credit to operations like these, the Farm Credit System is 

demonstrating its adaptability. Just as agriculture is adapting to meet the demands of consumers, 

the System is adapting to meet the demands of agriculture. 

Young, beginning and small producers often have difficulty finding the financing they need. As we 

all know, it’s not always easy to make YBS loans because these loans often carry higher risk than 

loans to larger, more established operations. But that’s why the Farm Credit System’s service to 

these producers is so critical. By extending service to borrowers like these, you are helping the 

agriculture industry to evolve to meet the food demands of this country and the world. You are 

giving young, beginning, and small farmers the chance to participate in an industry that is 

notoriously difficult to enter unless you are born into it.

In looking through the Farm Credit 100 website, I came across a video that’s part of a series 

called Farm Credit First Person. The video is short — just a little over two minutes long, but its 

message is powerful. It features interviews with a loan officer named Tim Knesek and a borrower 

named Greg Hengst, a young man from Texas who started farming in the mid-2000s. They 

describe how Greg came to Tim one day and asked for a loan to help him get started farming. Tim

made him a loan, and Greg farmed for a couple years, but then in 2008 he hit a bad year. His crop 

was short, and he couldn’t make his payments. Even though this would probably mean he had to 

give up farming, Greg offered to sell off his land to make the payment. But Tim told him no. He 

worked with Greg and with the Farm Service Agency to get him through that rough year. Today 

Greg is in good standing, and his operation is going strong.
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This is what the Farm Credit System is all about — being there in good times and bad. Not only 

did the System give a newcomer to farming a chance he might not otherwise have had, it also 

worked with the borrower during his time of need, recognizing that bad years come and go in 

farming, recognizing the value of helping young people succeed in agriculture.

And I’m happy to hear that some System institutions are conducting market research to identify 

YBS producers in their lending territories. One institution recently performed a study on the 

borrowing and purchasing habits of millennials. From this study, the association concluded that 

young producers constituted one of their top five areas for potential growth. The association was 

planning further market research, focusing on women and minority groups — especially Hispanic 

producers — in its chartered territory. 

After performing market research, another association concluded that it needed to form a special 

loan program for young, beginning, small, minority, and veteran farmers who sell their products 

directly to consumers or through local or regional food systems.

I’m also happy to hear that many of you are partnering with other organizations, like USDA’s Farm 

Service Agency and local governments, to serve YBS borrowers. This not only increases the 

number of YBS loans you can make, it also reduces the risk to which these loans may expose 

you. And to increase the likelihood that these borrowers will be successful, many of you also 

provide training through programs like AgBiz. These programs help educate producers in financial 

and operational matters, including the use of crop insurance and changes in government policy.

So today I would like to thank you for your service to the YBS producers in your territories, and I 

would like to challenge you to continue to reach out to these producers, including members of 

groups that are underrepresented in farming and in the customer base of the Farm Credit System. 

Although there is still much work to be done, you can be very proud of what you have achieved. 

As your regulator, we share your commitment to agriculture and rural America. We are working 

hard to ensure that you have the regulatory framework you need to achieve your mission. I’d like 

to share with you some of the key regulatory actions we plan to take over the next 12 months. 

Issuing a final capital rule is at the top of the list. The System will have a modern capital rule 

that is comparable to the rules of other U.S. banking regulators and reflects the Basel III 

accord where appropriate.

We are also considering regulatory action on similar-entity lending. We recently had a 

productive conversation with System representatives on this topic, and we are encouraged by 

the voluntary steps you are taking. We will soon issue guidance on this topic, and we will 

continue to evaluate whether further action is needed.

Other issues on which we are considering regulatory projects are internal controls, territorial 

concurrence, stress testing, and cybersecurity.

We are also considering the possibility of reproposing the standards-of-conduct rule to offer a 

more principle-based, less prescriptive, rule to govern standards of conduct at System 

institutions.

We also plan to issue a final rule on investment eligibility regulations for banks and 

associations.

Having outlined these regulatory priorities, I would also like to note that I do not believe in 

regulating for the sake of regulating. I believe that government regulators should adopt the guiding 

principle of the medical profession: First, do no harm. With every regulation we adopt, our goal is 

to add value — to protect the safety and soundness of the System and to help it achieve its 
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mission. Of course, you may not always agree with us on the value of a regulation, but we will 

always keep the communication channels open to hear your concerns.

Creating an appropriate regulatory framework is one way the Farm Credit Administration helps 

ensure a safe, sound, and dependable source of credit for farmers and ranchers. Another way is 

through examining System institutions for safety, soundness, and legal compliance. At least once 

every 18 months, we conduct an examination of each institution, reviewing loan portfolios, internal 

controls, underwriting standards, etc., looking for weaknesses or other issues that could affect the 

institution’s ability to serve its mission. 

And if we find weaknesses, we use our enforcement authorities to require the institution to resolve 

them. As part of an enforcement action, we may require an institution to enhance its board 

governance, improve its ability to identify risk, or to correct weaknesses in lending practices, 

financial management, or standards of conduct.

Although no institution ever wants to receive a notice of an enforcement action, the action is 

designed to help an institution avert bigger problems. On several occasions, institution boards 

have thanked our examiners for helping them address their weaknesses and return to a safe and 

sound position.

The Farm Credit Administration also confers another benefit on the System: We help protect its

reputation. Knowing that the System has a strong, independent regulator assures Congress, 

System investors, System borrowers, and others that it will serve its mission and remain safe and 

sound. 

I’d like to leave you today with a few thoughts for ensuring the System’s continued success. I have 

had the good fortune to see the agricultural credit industry from a variety of perspectives.

My first perspective was from that of a borrower. For many years, I worked for Citrus Central and 

Florida’s Natural Growers, federated cooperatives that borrowed from the Farm Credit System. 

From this position, I could see the critical role that financing played in the success of the 

cooperative. I also came to appreciate the symbiotic relationship of the borrower-owner and the 

cooperative lender. By governing the institution, the borrower-owners provide valuable direction

for it; in return, the institution meets the needs of its borrower-owners effectively and efficiently.

Then in 2006, following my retirement from Florida’s Natural, I was elected to the board of AgFirst 

Farm Credit Bank. During my four-year tenure on this board, I acquired a new perspective — that 

of the Farm Credit System lender. From this perspective, I could see the role that financing played 

not only in the success of a single enterprise but the role it played in the success of an entire 

industry. And I came to understand the delicate balancing act required in serving borrowers in 

good times and bad while at the same time maintaining the lender’s own safety and soundness. 

Most of all, I got to know many of you, and I’ve seen your sincere passion for agriculture, for your 

communities, and for the mission of the Farm Credit System.

And finally, in 2009, I acquired yet another perspective of the agricultural credit industry — that of 

regulator. First as a member of the FCA board and now as its chairman and CEO, I have come to 

understand more fully the critical role that the System plays in the lives of farmers and ranchers 

across this country. I have come to appreciate the role that the System has played in the history of 

agriculture and the important role it must play in its future. I have come to understand the very real 

threats to the System — not simply the economic challenges but also the political challenges. I 

can see the importance of the System’s reputation for its future. From the battery of questions I 
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received at the congressional hearing, I realized that it’s not enough for the System just to fulfill its 

mission, it must ensure that Congress knows it’s fulfilling its mission.

In previous speeches, I have encouraged you to tell your story, and I can see from your website 

that you are doing just that. You have created several videos that communicate the important role 

the System plays in agriculture and rural America. The Farm Credit 100 video is particularly 

effective. It makes two important points: that U.S. agriculture keeps our country strong and that 

the Farm Credit System keeps agriculture strong. Not many people understand the first point, and 

even fewer understand the second.

But make sure Congress sees your videos. Make sure they know what your mission is and how 

committed you are to fulfilling your mission. And make sure they know that it’s your public mission 

that sets you apart from all the other lenders. Most any bank will lend to farmers in good times, but 

a government-sponsored enterprise has a mission to serve farmers even in bad times. That’s 

what sets the System apart. 

I would also like to encourage you to do more of what you are already doing—serving the credit 

needs of our nation’s farmers, ranchers, farm cooperatives, rural utilities, and others who are 

eligible to borrow from the System. In addition to serving producers with well-established 

operations, make every effort to serve those without that advantage — those who are young, 

beginning or small, those who are members of minorities and underrepresented groups, and 

those who are located in urban areas. As always, you must protect the safety and soundness of 

your institution, but I encourage you to continue to use your ingenuity to find ways to serve 

borrowers who might not find service elsewhere. 

At the end of the day, it’s not how much business you did, it’s whether you served your mission. 

That’s what matters to Congress. That’s what matters to us. And I know that’s what matters to 

you, too.

We, the regulator, and you, the System, may not always agree on the details, but I know we share 

the same commitment to agriculture and to the farmers and ranchers of this country. 

Best wishes to you for your next 100 years of service to this nation. Thank you.