Annual Report to Congress 

Regarding 

Term Limits on Direct Operating Loans 

as 

Required by 

Section 5104 of the Agricultural Act of 2014 

Prepared by USDA/Farm Production and Conservation 

Economic and Policy Analysis Division 
Executive Summary 

Term limits, which impose a statutory maximum on the number of years a farmer may receive a 

Farm Service Agency (FSA) direct operating loan (DOL), have not appeared to have had a major 

impact on FSA's loan portfolio during the past two decades. A vibrant farm economy through 

2013 and ample credit availability enabled most farmers to meet nearly all of their credit needs 

through commercial lenders. Farm incomes fell in 2014, declined more sharply in 2015, and 

continued to drop through 2017. Expectations of continued lower farm incomes and a leveling 

out of land values in upcoming years may reduce commercial credit availability and increase 

reliance on FSA credit programs, resulting in more borrowers being impacted by term limits. 

Small and mid-size family farms and those in more economically depressed regions appear to be 

the most vulnerable to DOL term limits. 

FSA may obligate DOL funds to an eligible farmer who has received DOL's in 6 or fewer 

calendar years. The years need not be consecutive, and multiple loans received during a year 

count only against 1 year of loan eligibility. A borrower may receive additional DO L's in a 7th 

(final) year. The limitation does not apply to beginning farmers through their 10th year of 

farming. Waivers for 2 years can be provided on a case-by-case basis if borrowers continue to 

meet all other eligibility criteria. Youth loans and microloans to beginning farmers and veterans 

are exempt and do not count against the limitation. 

Key findings are: 

In calendar year 2017, an additional 598 farm businesses reached the DOL term limit. This 

brought the total number of farm borrowers reaching term limits since their inception in 1993 to 

7,346. These 7,346 farms represented more than 11,000 individual borrowers and co-borrowers. 

Term-limited borrowers represented only 5.4 percent of total DOL borrowers with a positive 

loan balance at the end of 2017. This reflects the importance of DO Ls as a temporary credit 

source. Nearly half of DOL borrowers during the last 25 years received a DOL in only 1 year 

and more than 80 percent were recipients of DO Ls for 3 years or less. 

There is no indication thpt term limits have hastened/arm exits. About 75 percent of farm 

borrowers who have reached term limits since their implementation in 1993 were still active in , 

farming through 201 7 as indicated by eligibility to vote in the most recent County Office 

Committee (COC) elections. Most term-limited borrowers-58.4 percent-maintained a 

positive loan balance with FSA for at least 3 years after reaching the term limit. Many continued 

to benefit from the use of other FSA credit programs. For example, nearly one-third (32.2 

percent) had received primary loan servicing while 9 percent received direct farm ownership 

(FO) and emergency (EM) loans subsequent to reaching term limits. 

Most DOL borrowers who reached their term limits since 2005 do not appear to be sufficiently 

creditworthy to meet most commercial lender underwriting standards. Only 16.7 percent of 

farm borrowers reaching term limits appeared sufficiently creditworthy to meet commercial 

lender underwriting standards, implying that they could likely receive credit from a commercial 

lender without an FSA guarantee. 

2 
Many term-limited borrowers could have qualified for additional FSA loans in the absence of 

term limits. Also, many of the farms in this group have credit shortcomings which could 

adversely affect their ability to obtain commercial credit, especially if exacerbated by current 

farm income trends. 

Term limits have had a greater impact on crop farms compared to livestock farms. While crop 

farms represented 46 percent of total DOL borrowers, they comprised 57 percent of term-limited 

borrowers. Likewise, term limits have greater impacts on regions where family-size crop farms 

are more prevalent such as the Corn Belt and Northern Plains, where one-third of all term-limited 

borrowers are located. 

3 
Annual Report to Congress 

Regarding 

Term Limits on Direct Operating Loans 

Introduction 

This report is provided in fulfillment ofrequirements specified in Section 5104 of the 2014 Farm 

Bill, which amended the Consolidated Farm and Rural Development Act (ConAct) and requires 

an annual report on term limits for DOL (see Appendix 1). As directed by the statute, this report 

documents the number and location of DOL borrowers who have reached their term limits, and 

their structural, demographic, and financial characteristics. 

Term limits impose a statutory limit on the number of years that a farm borrower may receive 

loan funds through programs administered by the U.S. Department of Agriculture (USDA). 1 

DO Ls are authorized under Section 311 ( c )(2) of the ConAct to provide a source of credit for 

qualified farmers. Term limits were initially enacted for both direct and guaranteed FO and 

operating loan programs by the Agricultural Credit Improvement Act of 1992.2 Term limits have 

never applied to EM borrowers. 

Subsequent legislation exempted all guaranteed loans from any term limits. Microloans made to 

veterans and beginning farmers are also exempt from term limits. Moreover, the limitation does 

not apply if a borrower's farm is subject to the jurisdiction of an Indian tribe. FSA can obligate, 

in certain circumstances, DOLs to borrowers beyond their term limit. For example, waivers are 

granted to qualified beginning farmers through their 10th year of farming. Non-beginning 

farmers may receive a 2-year waiver, provided the operation is viable, the borrower has or will 

complete financial training, and commercial credit is unavailable. 

One of the reasons for enacting term limits was to assure FSA's role as a temporary credit 

source. Long-term dependence on FSA credit can lead to economic inefficiencies such as 

subsidizing inefficient operations or crowding out of private lending. Another concern is that 

long-term DOL borrowers might monopolize program benefits at the expense of young and 

beginning farmers. However, there are provisions in place to address these issues. For example, 

regulations requiring qualified FSA loan applicants to demonstrate a feasible business plan 

impede the distribution of funds to unprofitable or inefficient operations, regardless of whether 

they are new or existing borrowers.3 Further, eligibility criteria and graduation requirements 

provide safeguards against crowding out of private lending, as qualified DOL applicants must be 

1 A farm borrower may be an individual, partnership, or legal entity. Term limits apply to both the entity and 

underlying individuals who are obligated as co-borrowers. This includes the spouse of married borrowers as well as 

a legal partner. In this report, the term 'farm business' or 'farm business borrower' refers to the primary borrower 

listed on the promissory note. 2 The ConAct states that an applicant is eligible for a direct operating loan if the applicant received a DOL in 6 or 

fewer years. The regulations (7 CFR 764.252), which were implemented in 1993, state that an applicant is not 

eligible if the applicant has closed a DOL in 7 or more years. The net impact of these provisions is that a borrower 

has 6 full years of eligibility before reaching the term limit. In accordance with language in the ConAct, this report 

considers term limits to have been met at the end of 6 full years of receiving DO Ls. 3 As required under 764.40 I (a)( 1 ), a feasible business plans is one which ' ... includes repayment of the proposed 

loan .' 

4 
unable to obtain credit from commercial lenders at reasonable rates and terms and provide 

supporting documentation. Graduation requirements stipulate that existing DOL borrowers 

considered eligible for commercial credit must refinance FSA loans with a commercial lender 

(Section 345 of the ConAct; 7 CFR 765.101). 4 Section 359 of the ConAct requires loan 

recipients to complete appropriate financial and farm management training, while Section 360 

requires FSA, in conjunction with the loan applicant, to develop a plan of supervision to assist 

borrowers in achieving financial viability and transitioning to commercial credit. These 

requirements were enacted to ensure applicants did not remain in the loan portfolio for extended 

periods of time. Additionally, a large share of loan funds is targeted for use by beginning and 

socially-disadvantaged groups. 5 

Term limits may adversely affect some groups and/or regions that may be more dependent on 

FSA credit. FSA tends to be more important in credit deserts, which are defined as regions 

served by few commercial lenders. Further, FSA credit programs tend to be more important 

among groups considered socially disadvantaged and among small and mid-size family farms. 

Also, term limits can adversely impact the Government's ability to serve as a safety net in the 

event of a credit crunch. 

Farm Economic Outlook 

For the fourth time in the last 5 years, U.S. farm income is expected to decline. USDA's forecast 

of 2018 net farm income represents a 13-percent decline from 201 7 and, ifrealized, would be the 

lowest in nominal dollar terms since 2006 (USDA, ERS).6 In inflation-adjusted (real) 2018 

dollars, net farm income would be the second lowest since 2002. Increased red meat and dairy 

supplies continue to depress livestock and milk prices. With crop receipts expected to be 

unchanged from 2017, profit margins are expected to remain tight. 

Nationwide, farm land values increased by 1.3 percent annually since 2015 (USDA, NASS). But 

in the Great Plains and Lake States, land values continued to decline through 2017 (Federal 

Reserve Bank of Kansas City (a); USDA (2018)). Low farming returns and increasing interest 

rates are likely to limit future increases in land values. Additionally, lower returns are likely to 

weaken farm balance sheets as farmers access equity to meet working capital needs. 

A generally pessimistic outlook is expressed by farm bankers in quarterly surveys undertaken by 

Federal Reserve district banks. Results of these surveys for the Chicago, Kansas City, and 

Minneapolis Federal Reserve districts reflect a slight improvement in 2018 but were generally 

negative (Federal Reserve Bank of Kansas City (b)).

7 The loan repayment ability index, as 

reported by lenders, has been under 100 since 2014, indicating weak loan repayment ability 

(figure 1 ). Though it has improved since 2016, the average index of farm loan repayment ability 

4 The process for evaluating a borrower's potential for graduation to commercial credit is described in Section 4 of 

4-FLP Direct Loan Servicing (http://fsaintranet.sc.egov.usda.gov/dps/services/downloadhandler.ashx?fileid= J 7989). 5 SDA groups are those whose members have been subject to racial, ethnic, or gender prejudice because of their 

identity as members ofa group without regard to their individual qualities. It includes, but is not limited to, Blacks, 

Asians, Hispanics, American Indians, and women. 6 This does not include payments made under the Market Facilitation Program which was announced on August 27, 

2018. 7 The area served by these Federal Reserve Banks includes the Great Plains, western Corn Belt, and ~tates bordering 

the Great Lakes. 

5 
for the three Federal Reserve districts remains lower than at any time between 2003 and 2015. 

The index for renewals and extensions as well as the loan demand index has been more than 100 

since 2014, indicating that lenders are seeing more situations where farmers are unable to 

completely repay their production ( operating) loans and are seeking either a longer repayment 

period or a roll over to the upcoming year's credit line. Additionally, bankers indicated that they 

have been increasing collateral requirements since 2014. 

Farm Financial Conditions 

While lenders have been generally pessimistic since 2013, loan delinquencies for both 

commercial banks and the FCS have increased only slightly since 2015 (figure 2). FSA defaults 

tend to be higher than for commercial lenders, reflecting the higher risk profile of FSA borrowers 

(figure 3). From 2003 to 2017, default rates by DOL borrowers ranged from around 15 to 25 

percent. This compared to a default rate of less than 3 percent of total loan volume for FCS and 

banks.8 At the end of 2017, 17.6 percent of DOL and 8.6 percent of direct farm ownership 

(DFO) borrowers were in default. DOL default rates have increased by about 3 percentage 

points from 2014 to 201 7 yet remain low by historical standards. The share of guaranteed 

operating loan (GOL) borrowers in default has been increasing since 2014 and, at 7 percent, 

remained at the highest level since 2003. While DOL and GOL defaults have increased since 

2015, defaults for the DFO and guarantee farm ownership programs have remained stable. Loan 

losses on FSA loans remain at historical lows despite recent increases in farm loan defaults. 

Low loan defaults and other financial duress indicators are most likely a consequence of the 

strong equity positions held by farmers. Generally, farm financial conditions have remained 

strong as reflected by relatively high net worth. Farm equity is at historical highs and debt-asset 

ratios at historical lows. High commodity prices and farm incomes contributed to more than 50-

percent growth in farm equity from 2009 to 2014- providing a substantial cushion to withstand a 

prolonged economic downturn (figure 4). This is in contrast to the equity picture of the 1980s 

farm financial crisis. 

However, there are some early indicators of potential financial duress in the farm sector. In 

addition to the pessimistic outlook among bankers, the quality of commercial banks' agricultural 

loan portfolios appeared to deteriorate in 2017. Surveys of bankers undertaken by the Federal 

Reserve indicated that the share of farm loans holding a moderate or higher risk rating increased 

to more than 40 percent in 2017 (Federal Reserve Bank of Kansas City (b)). An increasing 

proportion of higher-risk borrowers suggests that such borrowers could face near-term obstacles 

in obtaining credit from commercial lenders, especially if farm incomes continue to fall. Also, 

small- and mid-size family farms, defined as having between $100,000 and $1 million in annual 

sales, may be more susceptible to any downturn. USDA ARMS data for 2014-2016 indicated 

that farms in this group had utilized a majority of their debt capacity and had lower average 

returns on assets than larger farms (figure 5).

9 Small and mid-size farms also tended to be more 

reliant on FSA as a credit source compared to large and part-time farms (Dodson and 

Ahrendsen). 

8 Delinquency rates for FSA are based on loans past due for 30 days or more while those for commercial lenders are 

for 90 days or more, which explains at least some of the difference in percentages. 9 The farm size classifications in this report are drawn from USDA's Economic Research Service farm typology as 

described in America's Diverse Family Farms, 2017 edition. 

6 
Term-Limited Borrowers 

The number of farm businesses reaching term limits has continued to increase annually since 

2013 (figure 6). In calendar year 2017, an additional 598 farm businesses, reached the DOL 

term limit of 6 full years, bringing the cumulative number of term-limited farm borrowers to 

7,346 (table 1) 10• Since a farm borrower can be an individual, or multiple individuals, or a legal 

entity, the number of persons impacted by the DOL term limit is greater, at 11 ,158. At year-end 

2017 there were 2,951 direct farm borrowers (representing a total of 4,785 individuals) that (a) 

had reached term limits, and (b) had outstanding DOL balances. While increasing since 2013, 

term-limited borrowers as a share of all DOL farm borrowers with an outstanding loan balance 

was only 5 percent at year-end 2017 (figure 6). 

Even though a borrower may have reached the term limit, many continue as DOL farm 

borrowers benefiting from the advantageous terms associated with these loans. Since 2005, 

almost 60 percent of all term-limited farm borrowers maintained DOL balances for at least 3 

years after reaching term limits. Of the 7,346 farm borrowers who had reached term limits since 

1993, 40 percent still had an outstanding DOL balance at year-end 2017 (i.e., table 1-

2,951/7,346). Term-limited borrowers are still eligible to participate in other FSA credit 

programs such as DFO, EM loans, or FSA guaranteed loans. Among term-limited borrowers, 9 

percent had received an EM or DFO while 19 percent (l ,367/7,346) had received a guaranteed 

loan (table 1). Reaching the term limit also does not affect eligibility for primary loan servicing, 

of which one-third of all term-limited borrowers have partaken. 11 

Most farmers who have utilized DOLs have done so only as a temporary credit source. Nearly 

half of all farmers receiving DOL loans since 1993 received DOL loans in only one calendar 

; ear, while more than 80 percent have received a new DOL in 3 years or less (figure 7). 

Consistent with targets for beginning farmers, term-limited borrowers tend to be younger than 

average. The average age of borrowers reaching term limits was 45 years, compared to the U.S. 

average farmer age of 58 years (table 1 ). Nearly 30 percent were a member of a targeted group 

during their last year of DOL eligibility. 

There is little evidence that term limits hasten farming exits. There appeared to be few forced 

liquidations as indicated through loan write-offs. Only 7 percent of term-limited borrowers 

either had received either a direct debt settlement or a guaranteed loss claim, with most of these 

losses occurring prior to 2012. Another 5 percent (385) are deceased. About 75 percent of farm 

. borrowers reaching term limits since their implementation were still active in farming in 2018 as 

indicated by their eligibility to vote in the most recent COC elections 1

2. 

10 The number of farm borrowers reaching term limits is based on the total number of calendar years in which DOL 

funds were received as of December 31 , 2017. Beginning farmers who started farming after 2007 were excluded 

from the 7,346 term-limited borrowers. Borrowers who had used DOLs during 6 calendar years were considered to 

have reached term limits even though they are eligible for I additional DOL. 11 Borrowers who are 90-days or more in default may be eligible for primary loan servicing, which includes 

deferrals of principal and interest, rate reductions, extensions of terms, or partial loan write-offs. 12 An eligible voter in an FSA COC election includes an individual or legal entity which ... participates or 

cooperates in any FSA program that is provided for by law. 

7 
Financial Condition of All Borrowers Who Have Reached Term Limits 

While term limits may not have hastened farm exits, many term-limited borrowers were likely to 

have experienced adverse impacts. Most term-limited DOL farm borrowers do not appear to be 

sufficiently creditworthy to meet most commercial lender underwriting standards. FSA's Farm 

Business Plan data indicate that the average debt-to-asset ratio for term-limited borrowers has 

exceeded 50 percent since 2012 (table 2). 13 Also, the average current ratio (current assets/current 

debt) for term-limited borrowers is around 100, indicating that limited working capital could 

constrain production decisions. When providing operating credit, commercial lenders desire a 

current ratio of 200 or more. The average FSA classification score of 2.2 during the last 7 years 

for borrowers reaching term limits is consistent with shortcomings in credit quality. 14 Only 16.6 

percent of farm borrowers reaching term-limits in any given year had an FSA score of 1 (" l " 

indicates potential for graduation to commercial lending) (figure 8). More than half (52 percent) 

of term-limited borrowers were considered acceptable or marginal with FSA scores exceeding 

3.0 and would be likely to face credit constraints impacting their ability to make capital 

investments necessary to maintain or improve farm productivity. 

While most term-limited farm borrowers had credit shortcomings, their financial conditions were 

similar to those of other FSA borrowers. Since 2010, the debt-asset ratio, return on assets, and 

term debt coverage ratio for term limited borrowers during their last year of eligibility for new 

DOLs has been about the same as for all direct borrowers (table 2). The one exception was 

liquidity, as measured by current assets/current debt, which has been consistently below the 

average for all direct borrowers (e.g., in 2017, 93.0 vs. 109.8-table 2). The overall FSA 

classification score for borrowers reaching term limits has been less than the average for all 

borrowers, suggesting that many term-limited borrowers would qualify for additional DOLs, if 

the term limit was not a constraint (figure 8). 

Average annual revenue and total farm assets of term-limited borrowers were larger than for all 

DOL borrowers (table 2). Nearly 80 percent of term-limited borrowers operated farms with 

more than $100,000 in annual sales compared to 50 percent for all DOL farm borrowers (figure 

9) 15 . Farms with less than $100,000 in annual sales were the largest user of FSA DOLs but 

represented only 20 percent of those reaching term limits. The greater dependence of family 

farms on FSA credit programs reflects their economic vulnerabilities. Since they lack the size 

and scale of larger operations, their farm incomes tend to be lower. And since the labor 

requirements for operating a farm with less than $100,000 in annual sales can restrict the ability 

13 The Farm Business Plan is FSA 's version of Web-Equity (a cloud-based, loan-application and credit-management 

software application operated by Moody's Analytics). For a description, see FSA Handbook 1-FLP, Exhibit 15. It 

has been used by FSA since 2005 and provides data on a farm business's financial condition, operating plans, and 

loan status. 14 The FSA score is a borrower account classification used to determine a borrower's eligibility for graduation. The 

score is completed using the most current balance sheet and income/expense statements available. It is a weighted 

index of the current ratio, debt-to-asset ratio, return on assets, and term debt coverage ratio. The score can range 

from I to 4, with I being most creditworthy and 4 being the least (see paragraph 252 of FSA Handbook 1- FLP). A 

borrower with a score of I would be the most likely to meet commercial credit underwriting standards. 15 The farm typology reflects that used by USDA' Economic Research Service with respect to annual sales: parttime farms-$ I 00,000 or less in annual farm sales; small family farms-$ I 00,000 to $350,000 in annual sales; mid-size 

family farms-$350,000 and $1 million in sales; large family farms-$] million or more in sales. 

8 
to pursue nonfarm employment opportunities, family farms have less off-farm income than parttime farms. 

Term-limited farm borrowers were more likely to be row-crop farmers (those farmers whose 

predominant activity is cash grain, cotton, and/or oilseeds). While row crop producers 

represented 27 percent of all DOL borrowers since 1993, they have represented 45 percent of all 

those reaching term limits (figure 10). Due to their greater need for working capital to plant a 

crop each year, crop producers have a greater demand for annual operating loans compared to 

livestock producers. Consequently, crop producers are more likely to use DOLs during multiple 

years. Term-limited borrowers have tended to be more common in regions where crop 

production is prevalent, such as the Corn Belt and Northern Plains. 

Summary and Policy Options 

DOL term limits do not appear to be having a large impact on current farm borrowers. Since 

their inception in 1993, only 7,346 borrowers have reached term limits. While the number 

reaching on an annual basis has been increasing, the total reflects 5 percent of current borrowers. 

This is primarily because DOLs have mostly been used as a temporary credit source with about 

half of all borrowers receiving new DO Ls in only 1 year. 

The lack of long-term dependence on FSA credit is a consequence of several factors. A strong 

farm economy through 2013 combined with rising farm land values facilitated an increase in 

farm equity. When combined with low interest rates and ample credit availability from 

commercial lenders, farmers have been able to meet most of their credit needs without turning to 

FSA. However, there are concerns as to whether this trend will continue. Several consecutive 

years of lower farm incomes have stressed farmers' working capital. Along with ongoing 

concerns about future prices, trade, interest rates, and farmland values, farm lenders have 

recently expressed a pessimistic outlook concerning farmers' repayment ability. These factors 

could result in a greater share of farms having to turn to FSA credit programs in upcoming years 

and greater numbers impacted by term limits. 

Term limits can have disproportionate impacts upon certain groups-specifically crop farmers 

and among small and mid-size family farms. Regions where small and mid-size crop producers 

are more prevalent will likely experience greater impacts from term limits. Also, there are 

certain regions characterized as credit deserts where FSA is a relatively more important source of 

credit. 16 A continuation of current trends in farm income are likely to exacerbate problems faced 

among small and mid-size family farms. Even though their balance sheets may currently be 

strong, many have shortcomings in liquidity, cash flow, or profitability, making them more 

vulnerable to a credit crunch. Also, the credit shortcomings faced by these family farms are 

unlikely to be eliminated completely in just 7 years. Given the nature of farming with low 

returns and high capital requirements, it will likely require a longer period for beginning farmers 

to achieve commercial credit status, especially if credit markets become tight. 

16 A credit desert is defined as: "Farming, ranching, and lending in areas where there are very few lenders ( credit 

deserts) and/or areas where cultural and/or economic conditions create unique circumstances and can be 

challenging." See USDA, Farm Service Agency Notice FLP-665 

(https://www.fsa.usda.gov/Jntemet/FSA_Notice/flp_665.pdt). 

9 
Policymakers may wish to consider options which provide greater flexibility in the event of 

widespread farm financial stress. For example, the Secretary of Agriculture could be granted the 

authority to implement waivers under certain conditions such as a declared disaster or economic 

crisis. Another option would be to modify Section 31 l(c)(2) so that DOLs to beginning farmers 

would not be considered a direct operating loan, along with youth loans and microloans made to 

beginning farmers or veterans, in this subsection. Under current law, beginning farmers are not 

subject to term limits; however, a beginning farmer becomes ineligible for further DO Ls after 10 

years of farming if they have received loan funds in 7 or more years. Changing the status from 

waiver to exemption would enable a beginning farmer up to 17 years access to FSA credit before 

being ineligible for further DOL assistance. 

10 
List of References and Suggested Readings 

Dodson, C.B. and B.L. Ahrendsen. 2016. "Beginning Farm Credit and the Farm Service 

Agency's Role." Choices. Quarter 2. ( http://www.choicesmagazine.org/choicesmagazine/submitted-articles/begi nning-fann-credit-and-the-farm-service-agencvs-ro le). 

Federal Farm Credit Banks Funding Corporation, 201 7 Annual Information Statement of the 

Farm Credit System, (March 24, 2015) as accessed May 18, 2018. 

Federal Reserve Bank of Chicago, Agletter, Number 1972, May 2018 

(https://www.chicagofed.org/publications/agletter/index), as accessed May 18, 2018. 

Federal Reserve Bank of Kansas City (a), Ag Credit Survey, 1st Quarter 2018, 

(https://www.kansascityfed.org/resea:rch/indicatorsdata/agcreditsurvey), as accessed July 18, 

2018. 

Federal Reserve Bank of Kansas City (b), Agricultural Finance Databook, May 4, 2018, 

https ://www .kansasci tyfed. org/research/i nd i catorsdata/agfi nancedatabook/ a11i c I es/201 8/ 5-4-

2018/ ag-finance-dbk-5-4-2018 (accessed October 10, 2018). 

U.S. Department of Agriculture, Economic Research Service. America 's Diverse Family Farms 

201 7 Edition, Economic Information Bulletin Number 185, December 2017. 

https://www.ers.usda.gov/publications/pub-details/?pubid=86197. 

U.S. Department of Agriculture, Economic Research Service and National Agricultural Statistics 

Service. Agricultural Resource Management Study (ARMS), 2014-2016, Version 1. 

U.S. Department of Agriculture, Economic Research Service, 2018 Farm Sector Income 

Forecast, (https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-fi nances/farmsector-income-forecast/, as accessed October 10, 2018. 

U.S. Department of Agriculture. FSA Handbook: Farm Loan Program General Program 

Administration. 1-FLP, Farm Service Agency, Washington, D.C. (2016). 

https://www.fsa. usda.gov/FSA/webapp?area=home&subject=empl&topic=hbk 

U.S. Department of Agriculture, National Agricultural Statistics Service. Agricultural Land 

Values, 2018 Summary, August 2018. 

http://usda.mannlib.cornell .edu/Mann U sda/viewDocumentlnfo.do ?documentID= 1446 

U.S. Department of Agriculture, Economic Research Service, Farm Income and Wealth 

Statistics: US. and State Farm Income and Wealth Statistics, https://www.ers. usda.gov/dataproducts/farm-income-and-wea lth-statistics , as accessed October 10, 2018. 

11 
Table 1. Cumulative Number of Direct Borrowers Reaching Term Limits Since 

Implementation of Term Limit Restrictions in 1993, End-of-Calendar-Year 2012-2017 

Cumulative# reaching DOL term limits a 

W/outstanding DOL balance on 12/31 

Received FSA loans after term limited b 

Direct farm ownership (DFO) 

Direct emergency (EM) 

Microloans to veterans 

Received FSA guaranteed loan 

Primary loan servicing after term limited 

Loan write-off after term limited 

Direct debt settlement 

Guaranteed loss claims paid 

Primary borrower age at last obligation 

Any targeted group: c 

Beginning farmer d 

Racial-ethnic minority 

Woman 

Socially disadvantaged (SDA) 

Veteran 

Primary borrower deceased 

County office committee eligible voters 

Cumulative total individuals (including coborrowers) 

Total Term Limited Farm Borrowers Through 12/31 

2017 2016 2015 2014 2013 2012 

# of farm borrowers 

7,346 6,748 6,225 5,733 5,334 4,987 

2,951 2,355 1,870 1,494 1,227 1,034 

669 635 561 514 434 352 

379 359 312 276 212 177 

264 258 241 237 227 184 

51 40 25 17 9 0 

1,367 1,261 1,029 635 854 780 

2,325 2,194 1,907 1,770 1,666 1,565 

483 483 482 481 476 472 

98 98 95 91 85 80 

45 45 45 45 45 45 

2,164 1,918 1,869 1,722 1,555 1,420 

1,368 1,215 1,236 1,143 1,027 931 

625 566 504 460 421 397 

414 365 338 313 282 253 

976 875 793 726 658 608 

612 584 561 548 528 512 

385 346 300 262 207 172 

5,477 5,092 4,664 4,623 3,889 3,618 

Number of total borrowers 

11,158 10,158 9,308 8,530 7,891 7,327 

a Estimates for previous years are revised from what was previously published to reflect any 

additional 7111 -year loans granted in 2017. For example, a farm borrower reaching the 6-year term limit 

in 2015 would have been considered in the 2015 column in earlier studies. If this farm borrower 

received a 71

h-year loan in 2017, they would be now be counted in the 2017 column. 

b Includes FSA farm loans under programs not subject to term limits. 

c FSA is required by Congress to target a percentage of farm ownership and farm operating loan funds 

to socially disadvantaged and beginning farmers. Microloans to veterans are exempt from DOL term 

limits. 

d Qualified beginning farmer when last DOL was received. Source: USDA FSA OBFN, R540, PLAS, 

DSTH, OM3RS, and SCIMS databases. 

12 
Table 2. IJalance Sheet and Income Statement Summary for DOL Borrowers by Calendar Year 

2017 2016 2015 2014 2013 2012 2011 2010 

Term-limited DOL farm borrowers during last year of eligibility 

--$ per farm--

Total assets 863 ,755 836,404 837,980 790,806 734,638 893,909 911 ,813 890,294 

Total liabilities 451 ,885 439,016 445,285 418,556 403 ,857 467,962 431 ,744 435,341 

Net equity 411 ,870 397,3 88 392,695 372,250 330,781 425,947 480,069 454,953 

Gross revenue 263,704 301 ,387 340,730 289,703 305,749 350,262 296,662 292,024 

Net income 50,232 51 ,764 62,508 56,281 58,511 73,183 63,304 58,063 

--percent--

Debt-asset a 52.3 52.5 53 .1 52.9 55.0 52.4 47.4 48.9 

Loan-to-value b 50.2 49.1 45.5 45 .6 46.3 35.8 40.5 38.7 

ROA C 2.2 2.7 1.4 3.3 2.9 4.9 6.1 3.9 

Debt coverage d 122.5 122.7 133.4 126.3 129.2 136.0 139.7 130.6 

Current ratio e 93 .0 99.4 100.6 102.6 100.4 92.7 99.3 115.9 

--average/borrower--

FSA score 2.2 2.2 2.1 2.2 2.2 2.2 2.2 2.2 -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All DOL farm borrowers with current balance sheet/income statement. 

--$ per farm--

Total assets 671 ,605 660,070 652,619 671 ,843 661 ,078 680,589 652,442 616,854 

Total liabilities 355,734 346,339 332,487 334,823 325,389 338,420 326,976 313,674 

Net equity 315,871 313,730 320,132 337,021 335,689 342,170 325,466 303,180 

Gross revenue 214,944 217,302 218,783 237,281 249,067 262,755 255,497 235,796 

Net income 36,737 38,767 40,309 43 ,213 49,423 50,795 50,345 43,129 

--percent--

Debt-asset 53.0 52.5 50.9 49.8 49.2 49.7 50.1 50.9 

Loan-to-value 56.8 55 .0 53 .2 51.9 51.1 51.5 50.6 50.4 

ROA 2.8 2.9 2.9 2.9 3.6 3.6 3.9 3.3 

Debt coverage 126.7 127.9 130.1 131.2 135.8 135.6 135.0 129.6 

Current ratio 109.8 111.2 121.5 129.4 135.3 134.8 129.7 115.3 

--average/borrowerFSA score 2.4 2.4 2.3 2.3 2.3 2.3 2.4 2.4 

a Debt-asset= total farm liabilities/total farm assets. 

bLoan-to-value = (value of the FLP security - value of any prior liens)/(FLP direct loan debt 

(principal + interest)). 

c ROA = (farm income - owner withdrawals)/ value of (farm) property owned. 

d Debt coverage = Net farm income from operations +/- total miscellaneous 

revenue/expense+ total non-farm income + depreciation/amortization expense+ interest 

on term debt+ interest on capital leases - total income tax expenses - owner withdrawals 

(total) / (annual scheduled principal and interest payments on term debt+ annual 

scheduled principal and interest payments on capital leases). 

e Current ratio=current assets/current liabilities 

13 
I Source USDA Farm Business Plan, March 2018. 

-~'l::~~,w~':f/JYJm!~~oq erm limits on direct loan borrowers. 

(B) 0EMOG~J'itJC INfORMATION.-

(i) 1N GENERAL.- The report shall provide a demographic breakdown, on a 

State-by-State basis, of-

(I) all direct loan borrowers; and 

(II) borrowers that have reached the eligibility limit for direct lending 

programs during the previous calendar year. 

(ii) DEMOGRAPHIC INFORMATION.-The available demographic information shall 

include, to the maximum extent practicable, a description of race or ethnicity, 

gender, age, type of farm or ranch, financial classification, number of years of 

indebtedness, veteran status, and other similar information, as determined by 

the Secretary. 

(C) ADDITIONAL CONTENT.-ln addition to information described in 

subparagraph (B), the report shall provide-

(i) a demographic analysis of the borrowers impacted by term limits; 

(ii) information on the conditions impacting the direct lending portfolio of the 

Department of Agriculture, including impacts by region and agriculture 

sector, and credit availability within those regions and sectors; 

information on the status of borrower operations impacted by term limits; 

and 

(iv) recommendations, if appropriate, to address any identifiable unmet credit 

needs. 

(D) SUBMISSION.-The Secretary shall-

(i) annually submit to the Committee on Agriculture of the House of 

Representatives and the Committee on Agriculture, Nutrition, and Forestry of 

the 

Senate a copy of the report; and 

(ii) make the report available to the public, including posting the report on the 

website of the Department of Agriculture. 

14 

Appendix 1. 

Text of 

Legislation 

from Section 

5104 of the 

Agricultural 

Act of 2014. 
160 

150 

140 

130 

120 

110 

100 

90 

80 

70 

60 

50 

40 

30 

160 

150 

140 

130 

120 

110 

100 

90 

80 

70 

60 

50 

40 

30 

150 

130 

110 

90 

70 

50 

30 

Farm Loan Repayment Ability Index 

- Chlcaso - Kansas City - Mrnneapo lls - Average 

Index of Requests for Loan Renewals and Extensions 

Loan Demand Index 

.,q,.,:,_,0o.,;0o<:.,0o~~0oJ;.,Cb~~°av;_,°<v~Oos;,Oos~~;,~~4:>>;_,0o.>~Oo,9;_,0o.s,~~~;;.,o;;J~J_,;;.,.,::.,~;;.,<::-'.;,;;.,~::J17;;.,~Js;;Js::JG;;Jd'::.,.>;;.,>::-'eQ_, Source: Kansas City Federal Reserve, Agrlc:u/tural Finance Oatabook, May 20'-B· 

Figure I . Indexes of loan demand, renewal and extensions, and loan demand for farm loans 

made by commercial banks in the Kansas City, Chicago, and Minneapolis Federal Reserve 

districts. 
Nonaccrual loans (90 days or more past due) as % of total loan volume 3.0 

2.5 

0 

> 

C: 2.0 RI 

12 

tlCJ 

C: 

'6 1.5 C: 

£! 

... 

::, 

0 

0 1.0 

'?ft. 

0.5 

a.a 

- FCS - Bank Real Estate - Bank Nonreal estate 

Sources:, Aplcultural Flnaice Databook May 2018, Kansas City Federal Reserve; 

Amual Reports of the Farm Credit System, Farm Credit Fundln1 Corporation, 

Figure 2. Agricultural loans 90 days or more past due as percent of total farm loans, for FCS 

and commercial banks. 
t'.! 

QJ 

3 

g 

0 

..0 

ro 

..... 

0 

..... 

-0 

* 

30 

25 

20 

15 

10 

FSA farm borrowers 30 or more days past-due as % of total borrowers 

(seasonally adjusted) 

- Guaranteed Operating Loans - Guaranteed Farm Ownership - Direct Farm Ownership - Direct Operating loan 

Source: FSA RS40 Database, National Information Technology Center; 

FSA GLS Database, National Information Technology Center 

Figure 3. Share of FSA direct and guaranteed borrowers in default by quarter (seasonally 

adjusted). 

.., 

= .i 

3 

.t:J 

"' c 

·s 

r:,'" 

" E 

.s 

'ii 

... 

~ 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 

Aggregate US farm equity and solvency 

19601962 1964196619681970197219741976197819801982198419861988199019921994 l 996199820002002 2004 200620082010 2012 2014 20162018 

- Farm equity (current$) - Reol farm equity ($2018) - Debt~sset (%) 

Source: USDA Economic Research Service, 

Farm Income and Wealth Statistica 

25 

20 

15 

10 

5 

0 

t:i 

to 

r:,'" 

-I 

-

9 

Ill 

"' "' to 

-., 

Ill 

6· 

0 ~ 

Figure 4. U.S. farm equity (in real and nominal terms) and debt-to-asset ratio from 1960-2018. 
120.0 

100.0 C 

0 

'.;::; 

"' N 

~ 80.0 ::, 

> 

.... 

·u 

~ 60.0 

"' u 

.0 

Cl) 

"O 40.0 

.... "' .8 

-O 20.0 

* 

0.0 

Part-time farm 

Profitability and debt ca pacity by farm typology 

2014- 2016 

- Debt Capacity Utilization(%) - ROA(%) - Operating Profit Margin(%) 

Small family 

(farmer-occupation) farm 

Mid-size family farm Large-scale family farm 

Source: USDA ARMS, 2014-2016. 

30.0 

22.2 20.0 

10.0 

* ril 

...+ 

0.0 C 

..... 

::, 

0 

::, 

-10.0 Qj 

V> 

V> 

(1) 

...+ 

V> 

-20.0 

-30.0 

-40.0 

Non-famity farm 

Figure 5. Average profitability and debt capacity utilization by farm typology, 2014-2016. 

Term-Limited DOL Borrowers 

700 

600 

500 

400 

300 

200 

100 

s [iJ w .,,,, 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

- % of total DOL borrowers at term limits - # of borrowers reaching term limits annually 

Source: FSA RS40 Database, National Information Technology Center; 

FSA GLS Database, National Information Technology Center 

2016 2017 

6.0% 

5.5% 

5.0% 

4.5% 

4.0% 

3.5% 

~ g 3.0% Q :: 

2.5% ~ ~ ... "' 2.0% ~ ~ 

Q. I» 

1.5% s· "' 1.0% (JQ ~ o"o 

0.5% ~ ..., 

"' 0.0% 

Figure 6. Number of borrowers reaching term limits annually and cumulative term-limited 

borrowers as % of all DOL borrowers from 2005 through 2017. 
60% 

50% 48.7% 

40% 

30% 

20.4% 

20% I 10% 

0% 

Distribution of DOL borrowers from 1993-2017 

by years of eligibility used 

12.3% 

6.5% 4.5% 3.2% 2.1% I II 

4 • - - • % of total DOL borrowers obligating loans from since 1993 

1.2% 0.8% 

-8 9 

Figure 7. All borrowers receiving DOLsfrom 1993-201 7 by total years in which a new DOL was 

received. 

1~ 

70% 

°" 

Distribution of borrowers by FSA classification score 

(2007-2017 average) 

Avg. Score - 2.4 Avg. Score - 2.2 Avg. Score - 2. 4 

New Oblpttons Term limited (Last Year of DOL ellatbllty) All bon-owers 

• Comme<dol • Standard Aw!ptable • Maratnal 

Figure 8. Distribution of DOL borrowers compared with all borrowers and those receiving new 

DOL loans by FSA classification score. 
All DOL borrowers 

Term-limited borrowers 

• Part-time farm • Small family fann • Mid-size fami ly • Large family farm 

Source: FSA Farm Business Plan, 2007- 2017 

Figure 9. Distribution of term-limited borrowers compared to all borrowers by ERS farm 

typology, 2005-2017 
0.87% 

ALL DOL TERM LIMITED 

Sources: USDA FSA Farm Business Plan; USDA FSA OBFN Database (2006-2017) 

0.77% 

0.63% 

• Other lvsk 

• Hogs /pigs 

• Poultry 

• Dairy 

• Beef 

• Other crops 

• Veg/fmit/nursury 

• Oilseeds 

• Cotton 

• Cash Grain 

Figure 10. Distribution of DOL borrowers receiving loans since 2006, by commodity 

specialization, for term limited and all borrowers.