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US Farm Credit chief not worried over crop prices and land values

By Christine Stebbins

(Reuters) — The Farm Credit System, the government-backed lender that handles almost half of all loans to U.S. farmers, expects 2014 to be a solid year for agriculture despite industry concerns about declining grain prices and softening farmland values.

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“People who have been engaged in production agriculture for any length of time understand there are adjustments every year,” Jill Long Thompson, head of the Farm Credit Administration which overseas the system, said in an interview.

“We’ve had some very good years, high profitability. I think we will have profitability this year too. Farmers are very well prepared for whatever changes might come in 2014.”

The FCS, a nationwide network of more than 80 farmer-owned cooperative banks and associations administered by Thompson, uses proceeds from debt securities to fund farmers and agribusiness. In its latest earnings in the quarter ended Sept. 30, FCS earnings rose 21 percent to $1.253 billion from a year earlier as total loans rose 1.2 percent to $194.2 billion. Full-year results are due the week of Feb. 17.

“The system is very strong. The percentage of non-performing loans is very low. The system has very good credit quality,” she told Reuters.

Farm Credit, as farmers call it, was launched by Congress in 1916 with the mission of making credit available for farmers and rural development. It competes with private banks, which have complained for decades of the system’s financial advantages as a government sponsored enterprise (GSE) in raising and lending funds. But even its critics in the private banking sector give it grudging respect.

“As critical as I am of the system, overall the system is very well capitalized,” FCS critic Bert Ely told Reuters. “Stress is relative.”

In recent years, some Farm Credit banks have been assumed to be under pressure from soaring grain prices — especially from loans to livestock, dairy and ethanol producers.

Just this month, AgriLand and Texas AgFinance merged in Texas cattle country while Farm Credit East and Farm Credit of Maine combined in the Northeast, a big dairy region.

But Thompson characterized as these combinations being driven by “efficiencies” more than any other factor.

“When you have associations merge you gain greater efficiencies. It does reduce some of the financial stress,” she told Reuters, noting that livestock producer finances have improved as grain prices retreated with the bumper harvest.

Thompson said FCS, like the Federal Reserve, watches farm land prices closely.