Remarks by

The Honorable Leland A. Strom

Chairman and CEO, Farm Credit Administration

AgFirst Farm Credit Bank Annual Meeting

Orlando, Florida

June 25, 2012

Good morning and thank you for that kind introduction.

I would like to thank Chairman Wayne Lambertson and the AgFirst Board for the invitation to be 

with you this morning at your 2012 annual meeting.

I want to first recognize a gentleman who is no stranger to this district, my board colleague Ken 

Spearman, who is in attendance here today. As you know, Ken chairs the Insurance 

Corporation Board and provides great leadership in that role along with his thoughtful 

commitment as an FCA Board member. I would ask Ken to please stand and be recognized.

I would also like to recognize the FCA and Insurance Corporation staff back at the office and in 

the field, who continually dedicate their efforts to the successful operation of the Agency. Late 

last year, it was an honor for me to receive on behalf of the Agency, its first-ever recognition as 

a “Best Places to Work in the Federal Government,” awarded by the Partnership for Public 

Service. This was a significant award for the Agency.

I want to also say at this point, early in my comments, that over the history of my involvement in 

the Farm Credit System, which began with my first loan in 1978, and first election to a board of 

directors in 1981, I have had the honor of working alongside so many fine individuals. But I need 

to say a special word about AgFirst’s retiring CEO, Andy Lowry, who has been one of the 

foremost leaders, not only in this district, but across the System during his long career. A true

gentleman with professionalism unmatched, he has earned the greatest respect and will long be 

remembered for his contributions to the agriculture industry. Andy, I wish you and your family 

the very best as you enter this next chapter of your life.

As is typical of my previous opportunities to be with you as FCA Chairman at your annual 

meeting, I plan on sharing a brief update of the condition of the System and of current issues on 

the Agency’s regulatory schedule.

Because the end of my six-year term arrives later this year and this may be my last address as 

FCA Chairman to this meeting, I plan on spending the last few minutes sharing some personal 

observations of the future for the System.
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First, an update on the System:

The Farm Credit System remains fundamentally safe and sound and is well positioned to 

withstand the continuing challenges affecting the general economy and agriculture.

As of the end of the first quarter, System assets totaled just over $230 billion with loans 

outstanding of $179 billion. Almost 93 percent of System loans outstanding were rated 

“acceptable,” compared with just over 90 percent a year ago. Nonperforming loans are down 16

percent from a year ago and equal just 1.7 percent of total loans outstanding, both positive 

signs.

While the outlook for agriculture remains favorable in 2012, volatile commodity prices and 

weaknesses in the general economy have increased the risk for certain agricultural sectors such 

as the livestock and ethanol industries. Conditions for housing-related industries continue to be 

very challenging. As a result, some deterioration in System asset quality is possible, with certain 

System institutions more adversely affected than others. 

Although agriculture, nationwide, has been very profitable the last couple years, the good 

fortune has not been shared uniformly. The housing bust associated with the Great Recession 

hit some parts of the country much harder than others. The AgFirst District was affected more 

than other parts of the System because of its exposure to housing-related industries, such as 

timber, nurseries, and sawmills, and these effects will likely persist until we see a much 

improved housing sector. Poultry has been another troubled industry over the past few years 

and has challenged System lenders across the country.

Although profit margins in the broiler sector have improved recently, uncertain economic 

conditions globally, combined with volatile feed costs, make for a risky operating environment 

for poultry producers going forward.

The AgFirst District has also had significant weather challenges. Despite the big rains that fell 

recently in the Southeast, there are still conditions that range from abnormally dry to extreme 

drought in large parts of Alabama, Florida, Georgia, and South Carolina.

While overall the Farm Credit System remains financially sound, the risk profile for some 

individual System institutions is elevated, requiring a greater level of supervision. Factors 

contributing to increased FCA supervision include broad external influences, such as adverse 

general economic conditions, ongoing weakness in specific agricultural sectors, and rapid 

changes in the risk environment for agriculture. 

Also contributing are institution-specific issues, including weaknesses in loan underwriting, 

inadequate risk identification, internal control and reporting deficiencies, inadequate board 

oversight and governance, ineffective management, and violation of laws or regulations.
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As of June 1, there were 15 institutions subject to heightened supervision, with eight institutions 

under enforcement or pending enforcement actions and seven institutions under special 

supervision or pending special supervision. Of these 15 institutions, eight are in the AgFirst 

District. In total, the 15 institutions represent less than 4 percent of total System assets.

We recognize the significant economic challenges that some associations have experienced 

and the impact on loan portfolios. We also recognize the efforts that boards and management 

have made to address the problems and restore the financial strength and performance of their 

institutions. We look forward to working through the remaining challenges and moving to a

successful track into the future.

I’ll conclude with saying that, even though the overall picture for agriculture remains strong,

especially in the Corn Belt states as evidenced by the continued acceleration of land prices to 

record levels, everyone involved needs to “exercise extreme caution” because, in this volatile 

global environment, fundamentals can change quickly. 

Now let me give you a brief regulatory summary:

In April, the FCA Board adopted requirements for System institutions’ business plans to 

incorporate marketing and human capital plans that address diversity and inclusion within the 

institution’s marketplace and workforce. We will continue to promote the principles of diversity 

and inclusion, not only because it’s the right thing to do, but also because of the significant 

opportunities it provides the Farm Credit System in fulfilling its mission of supporting the future 

of agriculture in America. 

In December 2011, the FCA Board approved a Proposed Rule on Senior Officer Compensation 

Disclosure and Related Topics. As was reflected by the significant number of comments 

received, particularly on the provision for a nonbinding advisory vote, we are aware of the 

System’s interest in this area. Our plan is to consider a final rule in September.

Later this summer, the FCA Board plans to consider final investment management regulations. 

Coming up this fall, we plan to consider final liquidity and funding regulations and several 

proposed investment-related regulations. 

Staff is working with other regulators to develop a final joint regulation on margin and capital 

requirements for uncleared swaps. Depending on the outcome of an international policymaking 

effort intended to harmonize international policy, work on a final rule may be completed by the 

end of the year. 

We are also reviewing the proposed Basel 3 capital rules issued recently by U.S. bank 

regulators. FCA intends to propose similar rules by early next year.
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During the past year, FCA gave final approval to several corporate actions, including the 

CoBank-U.S. AgBank merger, which included the most comprehensive review ever conducted 

by the Agency. FCA continues to closely monitor the progress of the merger.

Other Items

We continue to work with the System to improve the quality and consistency of the FCS Loan 

Database, as well as to address issues with shared-asset data. In our Fall 2011 Unified Agenda, 

we included a rulemaking project to consider minimum regulatory FCA data needs for 

evaluating risk in System loan portfolios. This is a very important ongoing project for both the 

Agency and the System. If a time came that the markets demanded quick answers to riskrelated questions that the System could not provide, an outcome could be significantly higher 

cost to the System in selling its debt obligations. 

Agency Operations

As a forward-looking, risk-aware agency, we are always looking to the future and preparing for 

change. For example:

• We continue to hire new talent to replace our retirement-eligible workforce.

• We are adopting new technologies that will help us be more effective in risk identification 

and build further efficiencies.

Young, Beginning, Small/Local Foods Sector

As you know, service to all creditworthy farmers and ranchers has been a theme in my 

speeches for the past couple of years and is an important subject to me. Service to the all of 

agriculture is integral to serving the next generation of agricultural producers—those who

produce a commodity product and market to the elevator and those who market their products 

directly to the consumer, known as the local foods system.

In many instances, loans made to the next generation of agricultural producers are made 

through your YBS lending programs. It is for this reason, as well as compliance with law and 

regulations, that the Agency takes a particular interest in the development and implementation 

of your YBS programs.

The Agency annually receives YBS information from you through our YBS questionnaire. I 

would like to make a couple of observations from AgFirst associations’ responses to this year’s 

questionnaire. In it we asked what tools associations use to assist YBS farmers and ranchers in 

meeting creditworthy standards to make safe and sound loans as required by our YBS 

regulation. These tools may include underwriting standards tailored to the characteristics of YBS 

farmers as well as tailored loan terms and fees. Loan guarantees are another such tool. The 

questionnaire responses told us that the number of AgFirst associations using these tools, with 

the exception of FSA guarantees, is low. But AgFirst associations did report that they made 
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loans to first-generation farmers and to farmers engaged in marketing their agricultural products

directly to the consumer this past year. 

I have recently had the pleasure to meet with farmers who operate within the direct-to-consumer 

or local food system. These farmers have demonstrated to me that many are operating viable 

farming operations that are creditworthy. Many of these farmers could benefit from the use of 

YBS-specific loan-making tools. The result could be better mission service to this important and 

growing market segment.

FCA staff, led by the recently appointed Special Advisor for YBS and Local Food Systems, 

analyzes the System’s YBS lending performance and recently reported those results to the FCA 

Board. We noticed in the report that AgFirst associations make a significant amount of loans to 

small farmers. We also noted that the share of lending to young and beginning farmers declined 

last year, not dissimilar to the declines Systemwide. As the System continues to advance the 

congressional mission to serve the credit needs of YBS farmers, we continue to monitor the 

lending activities within the System.

Farm Bill Update

This past Thursday, June 21, the Senate passed the 2012 Farm Bill by a vote of 64 to 35. 

Notable changes in the commodity title are the elimination of direct payments, counter-cyclical 

target price payments, and the ACRE revenue program. The Senate bill replaces them with the 

Agriculture Risk Coverage (ARC) program for covered crops, except cotton, which has its own 

program. The bill retains the Marketing Loan Program, but it contains major changes to dairy 

policy. 

Many of the 35 votes against the Farm Bill were cast by southern senators who object to the 

bill’s new commodity provisions. The provisions rely more heavily on crop insurance to provide 

a safety net for farmers, and these senators believe these provisions will not provide sufficient 

protection to farmers who produce southern crops, particularly rice and peanuts. 

Meanwhile, House Agriculture Committee Chairman Frank Lucas announced that his committee 

will begin to mark up its version of the Farm Bill on July 11. Chairman Lucas has expressed 

concern that the Senate’s commodity title lacks balance and has indicated the House Farm Bill 

will include provisions that better suit southern commodities. Needless to say, a lot happened 

last week, but the outcome is far from certain.

Personal Observations

As many of you probably are aware, the Farm Credit Act allows for one six-year term for a 

person to serve on the FCA Board. As I mentioned in the beginning of my comments, the end of 

my term is approaching later this fall. It is hard for me to realize how quickly those six years 

have gone by. Having spent virtually all of my working life connected to the System in some 

form, beginning as a borrower 35 years ago, to being the Chairman of FCA these past four
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years, time and roles have afforded me an interesting perspective as I look to the System’s past 

and future.

During the past 35 years, I have seen and been part of the best of times and the worst of times 

in the agriculture industry. The boom times of the late 1970s were met head-on with the crisis of 

the 1980s, which was brought on by a number of factors.

Having been elected to a PCA board in 1981, I took part in the important and many times 

difficult decisions boards of directors had to make. As directors, we set about the long and 

arduous task of rebuilding and restructuring.

This story is filled with grit and determination by so many in the System and the agriculture 

industry. As I stand here today, I can see the faces of leaders—both board and management,

past and present—who played such significant roles in shaping the System’s road to success.

Since the low point for the System and the agricultural economy in the mid-1980s, the focus of 

System leadership was on building stronger institutions. Earnings were used to build capital, in 

addition to building the Insurance Fund and repaying the financial assistance, including interest. 

Today, the agriculture industry and the Farm Credit System have arrived at their most healthy 

and profitable place in their history. In 2011, the System reported record net earnings of nearly 

$4 billion dollars.

The System is well capitalized and has a fully funded Insurance Fund, a major achievement of 

the past 25 years. Now that they are in a much better financial situation, I applaud some of the 

recent actions by institutions to become better corporate citizens. But there is still much that can 

be done to help build a secure future—not only for those already involved in agriculture, but 

those yet to come.

So I leave you today with these thoughts and observations, which I believe will be the basis for 

the success of the System into the future.

First, given the events of the global financial crisis of the past four years, and the responses to 

dealing with them, the System will continue to be challenged as a GSE, with its own 

independent arm’s length regulator, to differentiate itself from others and their recent practices.

Second, with the System today being financially stronger than at any time in its history, System 

leadership will need to constantly consider its stewardship of the benefits of GSE status.

And finally, with the continued consolidation of commodity and livestock production agriculture, 

and the continuing emergence and growth in new areas of agriculture production, like direct-toconsumer, how will the System continue to meet its mission of serving all of agriculture in the 

years to come?
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I look forward to continuing to work with my colleagues on the important matters before FCA this 

year. I wish the System well now and in the future. When I depart the Agency, I will leave with a 

confidence that all of our efforts have secured a bright future for agriculture and rural America.

Thank you.