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Farm lending OK in wake of downgrade, Farm Credit says

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WASHINGTON — Monday’s downgrade of the Farm Credit system’s credit rating by Standard & Poor’s has had little direct impact on farm lending and may hardly affect it all, Farm Credit said this week.

The cost of funding the Farm Credit system essentially hasn’t changed following S&P’s downgrade of its long-term debt from a AAA rating to an AA+ rating, suggesting no big effect on farmers who borrow through the federally sponsored network, said Regina Gill, a spokeswoman for Farm Credit Funding Corp.

Farm Credit Banks Funding Corp. is a fiscal agent for the Farm Credit System, issuing debt securities. The proceeds support the system’s lending operations to farmers.

Ms. Gill said the Funding Corp. issued short-term and mid-term notes at “good” rates following the downgrade, and she stressed that Farm Credit’s own financial standing is the best it has been in some years.

“It’s really directed at the government,” she said of the downgrade, which S&P announced along with its downgrade of the federal government’s credit rating for the first time.

Ms. Gill said she could not say whether farmers who come to Farm Credit for loans face higher rates because of the credit downgrade, or whether their cost of borrowing could still climb because of it. “I really don’t think anybody can answer that question right now.”

“A reduction in the system’s credit rating, if it were to occur, may increase our borrowing costs and may limit our access to the capital markets, reducing our flexibility to issue debt across the full spectrum of the yield curve,” the Farm Credit System warned in an Aug. 2 news release.

Farmers found encouraging signs this week, however, as bond yields fell Monday and Tuesday. Lower yields mean the system does not have to pay as much interest to investors, and that is the opposite of what economists normally would expect from a lowered credit rating.

Because the Farm Credit System is financially strong, the Senate Agriculture Committee reports that it does not expect the downgrade to have much effect on farmers, said James Rahm, a spokesman for Sen. Kirsten E. Gillibrand, D-N.Y, a member of the panel.

In its annual report, the system said its combined net income climbed $100 million and $302 million for the second quarter and six months ending June 30, compared with a year earlier.

Regardless of the credit rating, Farm Credit bonds are a solid investment in that they have an implicit federal guarantee, said Calum G. Turvey, a professor of agricultural finance at Cornell University, Ithaca. In addition, the system’s own policies state that assets must be at least 103 percent of the present value of future obligations, he said. And although farmland values can tumble, they have been stable since the 1980s, escaping the most recent real estate bust, Mr. Turvey said.

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