small business committee. >> so many women were writing to them in at the front of saying i don't know exactly what you're fighting for what you need to come home because we have about one-fifth of the crop we normally do.

i just buried our youngest in back and you're not going to have anything left. you need to come home. >> will examine the vietnam war of the 1960s have experiences of charlie company discussing the battlefield of vietnam and we soldiers have to fight upon return to the united states. >> veterans have been just as political footballs. they been used as part of a morality play. they been just as many things but hardly anybody had gotten to tell their story who they were as young men before they went, the trauma of war that they went through both as great victories, it's funny times, it's horrible times and then what happened to the generation since they had been home. >> the 1966 length of civil rights activist advanced of the ku klux klan. >> for what reason did anybody want to come and kill my dad?

they came as result of the orders from the head of the klan who said go annihilate. and they came to kill the whole family. and learn about the freedom summer school programs during the summer of 1964 when volunteers from around the country the african-americans in mississippi methods of nonviolent resistance and encourage voter registration. >> there were meetings held throughout the city in various churches preparing the residents and from the other political rights and getting ready to register to vote. >> this weekend want the city chose to hattiesburg, mississippi, saturday at 5:30 p.m. eastern on c-span2's booktv and sunday afternoon at two on american history tv on c-span3. >> farm credit administration chair ken spearman was on capitol hill yesterday briefing members of the senate agriculture community. he told them his agency a strong

and prepared to weather the economic slowdown and agriculture. the economy has been weakened in recent years due to improving crop yields and lower demands. this is about two and a half hours. >> i call this hearing of the senate committee on agriculture, nutrition and forestry to order. thank you all for coming. today's hearing will examine the overall climate of credit in the world america, the health of ag lending for both the commercial bank and the farm credit system perspectives, and what the impact to corporate about is having on our nation's farmers. we will also examine whether the farm credit administration is exercising appropriate oversight of the farm credit system. farmers and ranchers all across the country are experiencing difficult economic conditions as

farm sector profitability is forecast to decline for the third straight year. over the past three years alone, net farm income is expected to decline by 56%. as our nation's farmers and rural communities continue to deal with low commodity prices and elevated input costs, access to affordable credit in rural america is as important today as ever. the spring 2016 agricultural lender survey released by kansas state university's department of agricultural economics expects the credit environment for farmers to remain difficult for at least a few more years. lenders indicate that demand for operating loans will continue to remain high, as liquidity and cash flow are problematic for many farmers.

further, non-performing loans have increased and are expected to continue in this unfortunate trajectory due to low commodity prices. in addition to the lender survey, the federal reserve bank of kansas city painted a similarly bleak projection of farm-sector credit conditions for the first quarter of 2016. lenders note an increasing share of farmers carrying over outstanding debt from previous years, with an increased demand for loans and weakening repayment rates. for farmers, every year is a high stakes bet as they put their confidence in their crops, livestock, and the business decisions they make throughout the year. while farmers continue to manage their risk through a period of low commodity prices and stubborn high input prices, it is important we begin discussions regarding next year's borrowing decisions. there is no doubt today's discussion is timely, especially

considering it has been just under a decade since we have had representatives from either the banking industry or the farm credit system before the committee to discuss some of the issues we will cover today. rural america relies on a network of credit providers consisting of the private sector and the farm credit system. created under the federal farm loan act of 1916, the farm credit system is a nationwide system of privately owned, cooperative lenders statutorily required to provide farmers and other rural borrowers with a permanent and affordable source of credit. currently, the farm credit system is comprised of 74 agricultural credit associations and four regional banks, which provide the ag credit associations with funds to make loans to producers and other retail borrowers. the agency tasked with regulating the farm credit

system is the farm credit administration. the farm credit administration is an independent agency comprised of a three-member board nominated by the president, and as we all know, confirmed by the senate through our committee. like the banking industry, the farm credit system is not a lender of last resort. the lender of last resort for farmers who are otherwise unable to secure private financing is usda's farm service agency. commercial banks and the farm credit service often rely on usda farm loan guarantees to make loans when borrowers are less credit worthy. to date, the farm service agency has seen a 21% increase in farm loans as compared to last year, a further troubling indication of a struggling agricultural economy.

much has changed since congress established the farm credit system 100 years ago. one thing that has not changed, however, is the importance of providing farmers and other rural borrowers with easily accessible and affordable credit. i, along with a number of my colleagues on the agriculture committee, remember very well the difficult times for the farm economy during the 1980s. no one wants to see a repeat of those dark days. i look forward to hearing from our two distinct panels of witnesses regarding the landscape of the current economic conditions in farm country, and what is working or needs improvement from a legislative perspective to protect the financial well-being of our farmers and our rural communities. before we hear from our witnesses, i recognize ranking member stabenow for any opening remarks.

>> thank you very much, mr. chairman. and thank you to our witnesses as well as the latest from the farm credit administration. great to see all of you are trying to this is a very important hearing so thank you for holding it. i want to especially welcome the witnesses approved last year. is wonderful to see you again. i also want to give a warm welcome to our second panel, serving both deny this marine corps and u.s. army. and he and his wife are now the proud owners of trinity farms in greenville michigan is great to have you here today and thank you for your service to our country. and for taking time away from planting corn to join us and tell your story. as many of us know, 100 years ago as the chairman said, in 1916 congress passed the federal farm loan act to address the

serious problems facing our farmers and agriculture produces. a problem that threatens the long-term success of our rural economy. at that time again reliable credit was often unaffordable in most rural areas. many lenders aborted farm loans altogether because the inherent risks of the weather and price swings made lending to farmers unappealing. as a result congress established the farm credit system. it filled a gap in credit and provided american farmers and producers the financing they need to expand in good times, and to weather the bad times. 100 years later the farm credit system engaged to ensure that producers of all types and sizes have adequate and reliable access to credit. in fact, farm credit lenders nationally provide more than $200 billion in loans to rural america. in my home state of michigan, greenstone farm credit provides

more than $5 billion in loans to producers, including to more than 17,500 small, new and beginning farmers that need access to capital. as we will hear from mr. weldon is exactly this type of support have helped secure land and create a new life for himself and his family after his military service. however as look at you the next several years we know we are in a period of low commodity prices. especially compared to what we've seen in the past few years. which make it more challenging for farmers to make ends meet. this year alone net farm income is projected to decline for the third consecutive year, a drop of 56% from 2013. and thank goodness, mr. chairman, we did the farm bill. to weather the downturn american farmers will continue to rely on commercial banks, usda, and our

farm credit system to provide the necessary short, medium and long-term financing that will allow american agriculture to continue and prosper. i'm pleased that will also be hearing today from lenders on our second panel who played an important role in providing credit for the entire food supply chain. i would also like to briefly mention the long-standing support of the farm credit system by senator pat leahy. i understand that he is in an appropriations meeting committee and will be unable to attend today. but as chair of the committee during the 1990s when many important reforms were made to the farm credit system, senator leahy has asked me to but for the record a transcript of his and then ranking member lookers or statements during the consideration of one of those major changes, and i would ask the chair to enter this into the record spill without objection, so ordered. >> thank you, mr. chairman. >> mr. chairman?

could i welcome a south dakota to witness. >> i would be allowed to do that. go ahead. >> dallas tonsager has a farm operation with his brother nonhazardous under secdef world of government in usda and someone who has a great distance great in public service you. so thank you for being here and welcome to the committee. give your family our best. thank you, dallas. >> thank you, senator. today i'm pleased to welcome our first panel of witnesses who represent the farm credit administration led by our chairman and ceo, the honorable ken spearman. mr. chairman, we appreciate your joining us body recover from a medical procedure, note that you were under doctor's orders to wear your cheval. i think that's the proper term. as i told you in the back room i was going to give you a black

cowboy hat, a cowboy hat as a we say in dodge city, but we don't want this to be a hearing with black hats. but you are committed and you're looking good. mr. spearman was appointed serve on the farm credit system board by president obama, october 13, 2009, has an extensive background working in finance agriculture cooperatives from 1980-1991. mr. spencer as a controller of a 100 million citrus co-op in orlando we handle financial management reporting and supervision of staff account. after serving in this capacity he went on to become director of internal audit for florida's natural growers and then serve as an outside director on the bank board until his appointment to the farm credit administration board. mr. spearman is also a u.s. army and vietnam veteran.

we thank you for your service. mr. spearman, thank you for your service to our country. i look forward to hearing your testimony today. after i introduced her fellow board members, our next witness on the stand is the honorable dallas tonsager, already introduced by my distinguished colleague. mr. tonsager brings decades of experience working on issues concerning farm credit, rural america and is now on his second stint serving on the board of the farm credit administration. in addition to being a board member of the farm credit administration, mr. tonsager serves as chairman of the board of the farm credit system insurance corporation which is responsible for ensuring the timely payment and principal and interest on obligations issued on behalf of the farm credit bank. before being nominated by president obama to serve on the farm credit administration board, mr. tonsager serves as the usda's undersecretary for world development from 2009-2013

where he worked to expand broadband and other critical ever structure projects all throughout will america. mr. tonsager hills in south dakota where he grew up on a dairy farm, it's part of you back before the committee, dallas, to look forward to your testimony. our third what is on the pill is the honorable jeffrey hall. mr. hall was appointed to the farm credit administration board by president obama on march 17, 2015. prior to his appointment he was president of association management and consulting firm. he cofounded in 2009. before working in the private sector, mr. hall was the kentucky state executive director for usda's farm service agency where he was responsible for farm programs and farm loan program delivery and compliance. and was a scout for the

university of kentucky's basketball team, as i understand. i made that up. [laughter] prior to some of the department mistral served as assistant to the dean of agriculture at the university of kentucky increases of the senior staff member to our majority leader mitch mcconnell from 1998-1994. altogether he has enjoyed a 30 year career in act policy thank you so much for joining us today. i look forward to hearing all three of your testimony today, asking you some questions about the state of the farm credit system. mr. spearman, why don't you kick things off? >> thank you, mr. chairman. chairman roberts and ranking member stabenow, and members of the committee, it is a privilege to appear before you today to report on the mission of the farm credit administration. i had a written statement to submit for the record. president obama appointed me to the board in october of 2009 and

designate me as ca chairman and ceo in march of last year. i have the pleasure of serving on board of the two very distinguished colleagues, tranelevetraneleve n and jeff hall from whom you will hear from in a moment. fca is an independent federal agency that regulates and examines the banks associations and related entities of the farm credit system, including farmer mac. responsibility is to ensure that the system meets its congressional mission to provide a dependable source of credit for agriculture and rural america. fca was created by an executive order of president franklin roosevelt in 1933. during the agricultural credit crisis of the 1980s, this committee we structured fca giving it regulatory and enforcement powers similar to those of other federal financial

regulators. fca is not an appropriated agency. we are funded primarily through assessments paid by system institutions. the farm credit system is the nation's oldest government sponsored enterprise. it is a nationwide network of basra were owned cooperative financial institutions. currently the system includes four banks and 74 director lending associations. the banks provide, loan funds to associations which in turn provide operating loans and long-term real estate loans to farmers, ranchers, and other eligible borrowers. one of the systems banks is also has the authority to land to agricultural cooperatives and rural utilities. farm credit bank of associations cannot take deposits. the system obtains loan funds by selling securities on the national and international money

markets. the securities are not guaranteed by the federal government. the system is the only gse that makes loans at the retail level. it was established to provide a dependable source of competitive credit to farmers, ranchers, and farm cooperatives. its mission is to serve american agriculture in good times and bad. and now after several years of record farm income, the agricultural industry has entered a new period of lower profits. in 2016 net farm incomes forecast to decline for the third straight year. times like this underscore our nation's need for dependable, affordable agricultural credit. because congress has the foresight to establish the farm credit system to 100 years ago, our farmers and ranchers have been able to provide abundant,

affordable food and fiber to people at home, and around the world. of course, stress in the form industry can also create stress for the farm system, and we are already seeing signs of stress in a few institutions. however, i'm happy to report that system banks and associations are fundamentally safe and sound as is farmer mac. and fca is taking steps to make sure the system remains safe and sound. the board recently finalized a rule that updates are capital regulations and aligns them with a basel iii accords. we continue to emphasize robust internal controls in all system institutions, and to monitor for emerging risks. regarding the systems authority, we have taken steps to ensure that it uses this authority only for the purpose of mitigating risk. and as always if we find a

transaction that is outside the limits and purpose of the law, we require that an institution to take corrective action. we also emphasize mission fulfillment. the system must serve all eligible creditworthy potential borrowers regardless of race or gender, and regardless of the commodity they produce or the size of the operation. we want to make sure the system also serves small organizations and operations that produce organic and value added goods for local markets. mr. chairman, this concludes my opening statement. thank you, no be happy to answer any questions. >> -- and i will be happy to answer any questions. >> mr. tonsager. >> chairman roberts, ranking member stabenow, and members of

the committee, thank you for the opportunity to testify today. i am pleased to now be serving as second term on the board of the farm credit administration with my distinguished colleague from chairman spearman and board member haul. i have served on fca board from 2004-2009. at the outset i want the committee to note my absolute commitment to the continued safety and sound is of the farm credit system as we navigate through the downward cycle into agricultural economy. rural america and the farm credit system are important to both my role as an fca board member and in my personal connection to farming and rural america's i was raised on a farm in south dakota. and was engaged in farming for over 40 years. the farm credit system which is properly owned by farmers and ranchers was well-positioned to persist through the 2008 financial crisis. in fact, the system's capital and liquidity positions, risk profile, stress testing capacity, and lending practices

into agricultural sector falls inevitably strengthened over the last eight years. with the challenges facing the agricultural economy to fca's over several and the farm credit system's purpose to be there for agricultural producers and rural communities in bad times as well as good times, are more critical than ever. i lived through the difficult years in agriculture in the 1980s and will understand the importance of the farm credit system to farmers and ranchers in such times. i have great confidence in sa's ability to ensure that the farm credit system institutions remain a source of sound, adequate and constructive credit to those farmers and ranchers struggling to keep their act operations going. in addition to my duties as the farm credit system board member i served as chairman of the farm credit system interest cooperation along with my colleagues on fca board. congress created the insurance corporation to ensure the timely payment of principal and

interest of the debt issued by farm credit system banks. congress also gave the insurance corporation and responsible to provide assistance to troubled farm credit system institutions and to act as a conservatory or receiver for failed system institutions. bylaw the injured so much remained a secure base amount equivalent to 2% of the adjusted insured obligations of the system banks, and is currently $4.1 billion into insurance fund. and about the margin under the secure base could pick this one acts as a safety net for the farm and ranch owners. in addition to the protections afforded by the joint and several of those agreement and the system banks. that concludes my opening statement. thank you to the committee and i look forward to your questions. >> mr. hall. >> thank you, mr. chairman, ranking member stabenow and members of the committee. my name is jeff aldrich which is a little of a year ago i sat before this committee. i appreciate your confidence in

the in appointing the unappreciative chance to come back as a board never of the farm credit administration. farm credit administration is an independent arms length regular to the farm credit system and from the back to our agency examines system institutions for the safety and soundness and compliance with laws and regulations. fca exercise increase oversight with institutions at a higher risk. the farm credit system was great to provide a permanent reliable source of credit to u.s. agriculture. when congress enacted the federal farm loan act in 1916, credit was not always available and affordable in some rural areas. many lenders avoided loans. the foundation of the farm credit system is its cooperative structure. agriculture changed in many ways and will continue to change by the guiding principles of the cooperative model continue to stand the test of time. member ownership and governance are a key ingredient of the success. as chairman spearman has reported, the system safe and

center the health of the system that is due in no small part to the actions of this committee. turned agricultural credit crisis of the 1980s, congress made some important changes to the farm credit system to give the opportunity to emerge stronger and better able to serve rural america and meet its mission. as you well know farm income is projected to decline for the third consecutive year, virtually all sectors of the commodity prices are lower than anytime in the past five years. farm debt continued to increase and many farmers impact does this have been forced to drop in equity they built. for julie agriculture has entered this downcycle from a position of strength with a struggle into streets hoping to hold down debt levels. to our challenges head on the farm credit system what it is well situated to remain a reliable source of credit. chairman roberts told as a set at this table over your going to get to outside washington to meet people in the system. i have prioritized my travel to meet with the barbers association boards and employs. you are dealing with these

challenges on a daily basis. also my visits i learned about the consequences of the rules and regulations imposed on the farm credit administration. my visits have helped me greatly in my role as a board member, without input from the regulated community my job would be much more difficult. i would like to say we will not always agree but i will always listen. at our march board meeting the farm credit administration board approved a new copper which require the system to hold on to more of higher quality capital. by raising the capital requirements, farms investments into associations is better protected from embedded. the farm credit administration board also adopted guidance to the system on the use of similar length agenda. i understand the reputation risk is a valid concern to adopting to schedule increased examination reporting requirements. it gives fca and added tool to monitor similar into the land activity. it gives us an indication whether additional guidance is necessary. both the cowboy rural at the

guidance are good examples of additional focus on internal controls. from the beginning of my term, chairman spearman has made into a controls a state priority. modern agriculture and financial service industry is more complex than ever. the department of credit administration this is will continue to strengthen the intro controls and to making your confidence and carry on the legacy of service to american agriculture and rural committees. thank you again for inviting me to testify. there are many challenges that face the system. having been a federal land bank borrower in the 1980s i can say with confidence, the system is much better and much stronger than it was 30 years ago. i don't consider myself an advocate for the farm credit system. i do consider it my responsibility to assure a safe and sound source of credit to eligible borrowers and owners of the cooperative. when the system is safe and strong the agency is doing its job as a regulator, and the benefits of a dependable source of credit will help bring prosperity to rural america. thank you, mr. chairman.

>> thank you all again for doing today before our committee, and for your statement. mr. spearman, the reports i side in my opening statement by the kansas city fed and the kansas state university paint a very bleak economic picture for farmers also of the country. i don't like saying that, and you probably don't like agreeing to it. now, i served in congress in the 1980s during the last farm crisis, the big one. and i'm confident that nobody, nobody wants to see a repeat of those tough times. today one of the condition of the farm economy and how do they differ from those present 35 years ago? i am hopeful they will show we are not headed for another crisis, it even more important, what safeguards are in place to ensure our farmers are protected in the event we do see two, three, four, five more years. i hope not, but if that is the

case, of low commodity prices. >> mr. chairman, thank you for the question. i had to push the right button here. the farm credit system as the three of us all stated is well capitalized at this time. it's well-positioned, if you will, to withstand the possible downturns in the economy that, the agriculture economy that are moving. the capital position is very strong. 16% capital, if you will, with $48 billion or so, roughly, in capital. the asset positions are strong in the system. the managements that are

currently at the institutions, i do want to say a lot better, but they are coming to more informed i think today than they were back in the 1980s. the earnings were very well in the system. as you can see from our financial statements. and liquidity ratios are over the top in fact they are more than twice what the regulations requirof 90 days. so i think that the system is well-positioned idm to withstand any downturn. of course there could possibly be blacks want out there that we are not aware of, but we have systems in place at the agency to keep us abreast of what those might be. and as an agency we will take,

we will take measures that will end up protecting the system more. >> i appreciate that mr. spearman. mr. tonsager, you will as chairman of the farm credit system insurance corporation is to ensure proper maintenance of the farm credit insurance fund. in her to safeguard the time of been a principal in this on the debt issued by the system banks. is funding comes from a collection of premiums from system banks. as you noted in your written testimony, in 2013 when times were pretty good, the farm credit system insurance corporation at the federal financing bank entered into a $10 billion light of credit. please explain what financial conditions within the farm credit system prompted this decision when we are in a much better situation. and what authority exist allowing insurance corporation

to take out the line of credit? >> the line of credit can only be used in times of economic emergency for the united states in general, not for agriculture specifically. it is a liquidity line designed to assure the flow of capital to the farm credit system, should there be an event similar to 2008 that might occur again. .. to have it there to assist us

should there be a liquidity event within the markets. >> that was not only prudent but you are a prophet. these are rather bleak times for him. i appreciate that. let me ask a question of the full panel. so anybody is welcome to answer. don't be bashful. one of the main criticisms we hear about the farm credit administration that fca's oversight of system lenders loans is not thorough enough that loans are being approved that fall outside of the system as charter or scope. how do you respond to that criticism? furthermore how does the farm credit administration execute its regulatory duties to assure that system members are able to serve farmers but are in the way to comply with the statute. feel free. >> mr. chairman, what you may be

referring to there is the consumer entity lending process that the system is involved in. this was a practice that was concluded in the act in 1992 as a risk mitigator. there are, one of the primary criteria for participating in that program is that they be ineligible loans that are functionally similar. there are limits if you will, on what the participation that these institutions can involve themselves in these, in these types of loans and the agency drafted and approved a book letter to provide guidelines, if you will for the system, to actually update their procedures

and get more approval from, from the board on any of these loans that are entered into and the book letter also addressed the possible reputational risk involving themselves in these type loans. >> i appreciate that. mr. hall, in your testimony you talk about a capital rule recently approved by the farm credit administration board this past march. just a couple of weeks ago. can you expand a little further on this rule, the rationale for approving it and explain what you hope it will accomplish? >> the primary goal is to make the system more comparable to other banking institutions. our money comes from wall street and when you have common terms and common factors that people

on wall street look at buying our paper, or buying the system's paper, this comparability was a important step. it's a program that think the agency has been involved in for about three or four years proposing rules and in march we were able to actually approve the board. the board approved the adoption of that rule. >> i appreciate that. senator stabenow. >> thank you very much, mr. chairman and i thank all of you. would you expand a little bit, i'm sure we'll hear more about similar entity authority and some of the high-profile cases that there have been concerns raised about. if you can expand a little bit more on steps you've taken to address that. again, how this mitigates risk from your perspective? and any of you are welcome to answer that, so mr. spearman?

>> okay, i'll start, senator, thank you. as i mentioned previously there some of the steps that have been taken have been to raise the heighten, if you will awareness that these type loans may create some controversy. there's the, the act does permit these type loans as a risk mitigator and the way that it does is that the system is a monoline lender if you will. so they have, they have to be there for agriculture in good times and bad. there's, the guidelines that we put out in our book letter is that the board needs to be more involved in these type loans and that they're, the policies and

procedures are examined by our examiners to make sure that they have, that they have been updated. and that there's, the institutions are keenly aware, if you will, that these are controversial type loans. >> would anyone else like to respond? yes. >> thank you, senator. i would just like to mention that congress over the years has provided several elements within the farm credit act that require banks and the farm credit system to work together and this is one of those elements. for every dollar that is invested in similar entity loan there is a dollar from a private banker. these loans can not be done without a private banker involved with it, and there has to be at least 50% involvement by another party other than the farm credit system. so i believe there's been, you know, there is some misunderstanding about these kinds of loans.

they have been authorized for many, many years. they include for, cobanks perspective, can do utility loans, communication loans, other types of loans. so you not only broaden the capacity of the system by having these loans, you strengthen the relationship with bankers in this particular area and other areas of the system. there is literally billions and billions of dollars done together with the banking community each year and thousands and thousands of transactions between the farm credit system and banking. >> thank you. mr. hall, did you want to add anything? >> the only thing i would add is sort of the reason behind similar entity lending and back in the 90's, was allowed institutions to broaden their risk, base of risk. they are functionally similar. they are not eligible loans. that is where some of the confusion comes in but i think we have monitored as an agency similar lending activity.

we've asked for additional overnight of that and continue to monitor as an agency to make sure it's proper and appropriate. >> thank you. changing to a little different area of of concern in terms of risk of agriculture, the decline in number of farms something which we're all concerned about. according to fda, 2014 to 2015, the united states lost over 18,000 farms and one million acres of farmland. i wonder would you responded to trend. average age of american farmer, all areas in the economy, average age is 58 years old. i wonder if you might speak to and describe some of the work that your institutions are doing to support new and beginning farmers which are very, very important obviously to all of us. mr. spearman.

>> thank you, senator, for that question. the cbs program that you alluded to was a was a program added in the early 1980s. it was added to purpose of providing a vehicle to bring young, more young, more begin, if you will and smaller farmers into the agricultural sector. some of the provisions that are provided under that act is that, that part of the act, is that there could be lesser interest rates charged, if you will in the underwriting process. education is provided for those folks who are not very familiar with some of the operations of agriculture. and also, it's, we pass ad book

letter if you will that encouraged farmers who borrow from the system there to be more involved in, with the youth aspect of farming. and, the lenders are, the book letter addresses the fact that the systems who actually lend the money actually survey their territory and make sure that they are addressing underserved, if you will, folks within the territories. >> thank you. would anyone else like to respond with the new and beginning farmers? yes. >> madam chair, i think it has been for the systems mission a significant success story to look at the data that's been aaccumulated regarding the growth in those loans in those areas.

i think the system has taken very seriously in my discussions with them the requirement to do this. they have taken it to heart and actually aggressively pursue this program. they each have their own individual programs designed for their region. we examine for them to execute those programs. the report is give to us each year and we in turn report to congress each year about the results of that effort. >> great. mr. hall, did you want to add anything? >> just one comment based on my previous experience working with farm service agency i know there are a lot of partnerships with system and farm service agency an guarranty programs are available. the system is active working with other partners to making sure the best population is served. >> thank you, mr. chairman. >> senator tillis. >> thank you, mr. chair. i'm going to maybe ask a different question.

first off, i'm from north carolina. we have a highly diversified farming community and some are doing pretty well right now, others are not doing so well and i want to echo that we need to be careful if this continues. we can see greater numbers of farmers harmed over time if we don't kind of get things on track and what i want to do is talk about some of the future risks. it may seem odd asking this panel about gmos but have your, are your people looking ahead and seeing, for example, we've got a discussion right now about maybe a fix for gmos here. if we don't fix it, then people like kellogg's and campbell's, number of major producers of food, are going to start reformulating. so over the course of the next few years, sugar beets will end be input to most sugar in favor of cane, cane suggest goor.

over 90% of the corn grown in the united states is product of gmo. i don't know what campbell's will to reduce that in share soups. same thing with white potatoes, 50% of the all the sweet toe tate toes grown in the united states are grown in the north carolina and 70% of the exports are from north carolina. none of them are gmo. maybe they replace sweet potatoes with white potatoeses. that would be good for me but not necessarily for the sweet potato growing states. does this present a risk of demand in the very near future? have you looked at that in your portfolios to have any idea what it means if you completely shut demand down for certain commodities say, sugar beets? >> senator, very good question. what we do as a safety and sound

regulator examine all risks. they report to us regularly. >> if congress doesn't act the near, intermediate, long-term effect it will have on some of these commodity producers? >> they analyze all risks within the system, some known and some, unknown to other. >> would it be possible for my staff to get in touch with you all to see what extent they recognize the impact on the, what will happen among the campbells and kellogg's and major food producers, they will reformulate. they will increase demand that will exceed our own capacity for sugar, cane sugar. instead of sourcing sugar beets grown in the united states they will source it from other parts the world. they will find other sourcing inputs. seems to me that will have devastating impact on commodity prices that today notice they

have taken that analysis in account, reformulation starting right now, it will start on steroids in july and august time frame and it will be -- it is not one of these five or 10-year market disruptions. this is probably a one or two-year market disruption. so i would be very interested in getting any analysis how that would affect the portfolio of farmers who are in the cross-hairs of these target commodities. because there is no question in my mind that the major food producers, those who put cans and boxes on the shelves are going to reformulate the to maximum extent they can. when you're talking about commodities that are in the 90 percentile in terms of gmo products, safe products i might add, at least according to the fda, the department of agriculture and the epa, what are they going to do? who are they going to sell that too to? if they sell it with the demand being down to what extent this affect a portfolio, financial

portfolio out there in their terms of being able to pay their bills? i don't i expect to ask you question. i frankly don't expect you to get the answer and frankly when i came into the room i didn't expect to ask the question. that those are risks that depend on congressional action or inaction. that is something you need to look at because that is potential looming crisis for some of the farmers out there. if i may i will follow up with questions to the agency so we can get specific information on how this could be destablizing to the sugar beet growing states, corn-growing states, potato-growing states, the soybean-growing states. it is an equal opportunity disruptor around i think we need to get some financial information behind it. thank you. thank you, mr. chair. >> let me say before i recognize senator bennet on behalf of the ranking member, our distinguished ranking member, that the responsibility and requirement that mr. tillis just

raised with regards to agriculture, biotechnology, night the difference as opposed to gmo. this is called agriculture biotechnology, abt. it is a good question and it's a challenge that the farm credit system ought to be thinking about as well as every lender that we have at our disposal within the world of agriculture. that responsibility is right here in this committee and also right in the, in the senate of the united states. the house has acted. we will act. the distinguished ranking member and myself and staff have been working overtime to come to an agreement we could bring to the floor where we could get 60 votes but i think mr. tillis's admonition is a very good one, more especially to everybody in the farm lending field.

reformulation is a pretty fancy senate word for we ain't going to buy what you're selling. that is happening today as we speak with the sugar beet producers and so, we know that we must act. everybody on this committee knows we must act and i want you to know that but i also want you to know that mr. tillis has raised a very, very important point. >> yeah, mr. chair, if i may, it's just that we need to put a face on who is affected by this policy and its farmers. it's farmers that are already, they have crops in the ground now. they have plans to put crops in the ground. next year the big businesses will find out what they can buy to avoid what i think is ill-advised policy, first evidence of this is in vermont. they will be able to make the change because they have the resources and the reach to do it. the farmers don't. thank you, mr. chair.

>> senator bennet. >> thank you, mr. chairman. thanks for holding this important hearing and i wish you and the ranking member well in your negotiating. time is not on our side. i want to thank the witnesses for being here today, and prudent oversight of fca. mr. chairman, you said the mission of the fca is to serve farmers and ranchers in good times and in bad times. as has been said farmers and ranchers across the country facing real financial hardships spurred by low commodity prices in colorado. producers are bringing less revenue but their overall costs of farming have increased year-over-year and are forecasts to increase next year as well. on top of that, persistent drought conditions have added extra volatility which makes it clear to me that farmers need all available options when it comes to lending. farm credit system was designed to mitigate against these fluctuations and the risks posed by farming and ranching.

describe the role of the farm credit systematic larly in tough economic times -- typically in tough economic times. what role it plays in the rural communities facing economic hardship. i would be happy to hear anybody on the panel to address it. >> want to address? >> sure. thank you, senator. i think that the obligation was made clear to us in the 1980s and the struggling time we had back at that time there needed to be a level of strength and commitment n rural america these are farmer owned cooperatives. these farm board members are extremely committed to their communities. that is number one, that basic governance that occurs within that. i think the system has an obligation to make sure that the system remains safe and sound, a reliable lender through that time but it also has an obligation to work closer with rural producers and i think they developed pretty good strength

in their loan officers, how they work with clients and how they make sure they get the best opportunity for financing. so i think that financial strength of the system and the capacity of the system in their lending and working with producers is going to make a lot of difference. in the '80s we saw a lot of producers that simply couldn't get the credit they needed at time or they were overextended credit and so their income was replaced by credit and they lost ground. and so i think one of the critical elements of this is how loan officers both in the farm credit system and the private sector work with those individual producers and help them recognize the circumstances they're in, fund them if they possibly can or help work with them if it becomes too challenging. it's a tough, tough thing. at that time we lost thousands of producers and many of them were fundamentally personally harmed in the process of doing that. additionally i would like to add

there are borrower rights to this. so the law requires that the farm credit system provide rights to borrowers in the event they're foreclosed on or acted upon. so by law a process must be followed with individual producers when time comes to make decisions about their credit. >> thank you for that thorough answer. is that thorough enough? i will ask a second question then. last year colorado producers exported $1.8 billion in farm goods to countries around the world. some farm credit institutions like cove vac, headquartered in colorado are engaged if export financing to support producers as they look to markets abroad. an you look at sort of the growth we're seeing in export financings for ag in this country? >> i think part of the change we've seen is previous usda programs like gsm programs have been replaced or substituted with other private credit

funding and i think the ability for cove bank, in particular to step up to add that financing option helps improve the export market. obviously when you're dealing with billion of dollars i will have to have some line of credit to participate in the international markets. >> it's becoming increasingly an important part of our rural economy, these exports. 80% of the wheat grown in colorado are exported from colorado. our dairy section ported as well. we're looking to open up these new markets and this can help. thank you, mr. chairman. >> i want to remind members we will soon have three votes. we'll keep the hearing going by alternating who votes gavel. i appreciate everybody's help and patience. senator ernst. >> thank you, mr. chair. thank you, gentlemen, for joining us here this morning. i'd like to talk about different groups that might be getting funding through the fcs. groups likes veterans or other minority groups. are there certain areas that

maybe you target or would like to see more participation? whether it's women, farmers, ranchers? if you could delve into that a little bit, maybe talk if you have some of those programs where you're looking at veterans or others that want to get into farming, ranching, any opportunities we might be able to express to our constituents. >> thank you, senator. the ybs program provides an excellent entree for nontraditional if you will agriculture. there's, that program, it was structured for young, beginning and small but also, we've expanded it to some degree with our rule, our diversity inclusion rule that we passed a couple years ago where we requested that the, and mandated if you will, that the institutions look at their

system, look at their, the area that they operate in, their district, and because the mission of the system is to serve all if you will, qualified, credit worthy folks and the system is doing that and we're examining for it and we're definitely seeing a lot more improvement since i've been on the board. particularly in veterans areas. thank you for your service. >> no, i appreciate that any other thoughts or examples? >> i would like to say that the fca board has been learning itself, we travel together to pine ridge indian reservation last year to explore the challenges lending in indian country and got a great experience from them. >> very good. mr. hall? >> i visited in texas a few months ago. visited a young producer who is

veteran of the didn't have much agricultural experience but has become successful in borrower of farm credit system. he was complimentary of support he receives and other educational programs that are available. i also mentioned another example closer to home from kentucky. young lady used to be employee of the farm credit system. they are involved in locally-grown community-supported agriculture. recently recognized one of the farm women of the year. they are system borrowers. there are great examples out there. i will say there is always more we can do. >> very good. i appreciate your work with veterans and others that might have challenges getting into farming. i think it is important that the opportunity exists out there for them. senator tillis brought up an interesting perspective but with abts or gmos, whatever the term might be we decide to use for for different types of

commodities. that does create a wrinkle out there. whether you're facing challenges with legislation or facing challenges with drought or other natural disasters, which you really can't plan for or predict but over -- with the outlook of the ag economy over the next several years what are the steps that you can take within the credit system to prepare for that? what, make you could explain how that works. >> well, senator, as a safety and soundness regulator as he mentioned previously, we examine and measure all risks that may happen. our examination are risk-based. we try to look at what problems might be on the horizon and. we try to develop rules if you will and regulations that would

help us to do a better job to make sure that the system remains safe and sound. >> okay. are you able to adapt quickly in those situations if the rules are going through the board? you know reacting to the situation on the ground whether it might be a drought or other crisis that you might see? >> well i think quickly may be kind of relative. i'm not fast enough for me personally but we do, we do spend time with it and we do try to plan and try to see if we can help the system do a better job and in helping distressed areas. >> very good. thank you, gentlemen. my time is expiring. back to the ranking member. thank you. >> thank you very much. senator casey. >> thanks very much. i want to thank you for your testimony and, chairman spearman, i wanted to commend

you on the answer that you gave about beginning, young and small farmers and the work you're doing there but i also wanted to raise though, a question about some of new risks or new challenges that you face. i know we have a lot of evidence in light of what happened in the '80s and the difficulties then that you can learn lessons from that that you can apply. i would have to assume and correct me if i'm wrong though, because of technological innovations and both the technology-based and financial ag system right now that some of those lessons may not apply because the technology and other, other strategies have changed. in light of that, if that is true, and in light of that, how do you assess some of the risks that you're going to face going

forward might be more, limits of technology are based on other challenges as opposed to the, the old 1980s problems that were encountered then? >> i, senator, as i mentioned previous, our examinations are risk based. our examiners make a determination as to where the greatest exposures might be and our resources are concentrated this that area. you bring up a great point about technology. cyber kinds of threats are very apparent in almost all sectors of our economy. one part of our examination is to spend time in the i.t. area with these, with the institutions that are being

examined, and if issues are found, corrective action is mandated. >> i hope, when you encounter those i hope you bring them to our attention and ask for resources where appropriate. also wanted to raise a question regarding, when you assess that, credit stress level in the systems loan portfolios within, well within risk, within the risk-bearing capacity, in light of that the, but also, when you reference declining protein and dairy product and grain prices, driving decline in profitability, i guess it follows from that you will experience moderate loan growth. if you could just pinpoint just

for 2017, as best you can, what is your outlook in terms of 2017 and loan repayment? >> well, senator, one of the points of, that we look at when we make determinations for where to focus our efforts and our examinations is, what's going to be anticipated in allowance of doubtful accounts if you will for entities that are being examined and we also look at, because of pay back abilities there, that could have a deleterious effect if you will on an institution there. if we see an area of vest in that area there, then we would indicate to the institution that they may want to look at their underwriting standards there

because there may be there that they're overlooking when they, when they let a loan. >> i appreciate that. i'll have questions for the record for rest of the witnesses in interests of time, thank you very much. >> thanks. >> senator brown. >> thank you, madam chair. and senator roberts, also. mr. tonsager if you want to answer this. touch for us how farm credit is equipped to a with stand a possible higher delinquency rate on loans while ensuring continuous access to credit for rural america? is there sufficient capital until system? share with us your thoughts on

that, mr. tonsager. >> coming out of the 1970s, many farmers were very highly leveraged. there were programs that allowed them to borrow a lot of money. after that, the crisis of the '80s, the amount of debt leverage was dramatically reduced. so i think the system did a decent job, as did most lenders not overleveraging credit to current borrowers and i think that's a big difference coming into the current circumstances we're in. capitalwise, there is $50 billion worth of capital in the farm credit system and $250 billion worth of loans. the total average comes to 16% which is very strong position overall to be in for the position of the system. i think that again as i mentioned earlier. i think the ability of working with people how they borrow money and how they work through their challenges is fundamentally different than it was previously. there is a lot of relationship lending done where that

engagement is part of that. so i think it is incumbent upon the agency to be very diligent and closely watching the situation as they evolve. as chairman spearman said, the payment rate is excellent. still the debt is being repaid. we have very low need of allowances at this point but that can change quickly as we go into these coming years. so it is necessary to look for that. i think it is going to be our balancing act about, you know, as an agency how hard we press the system. how in working with producers whether, you know, whether it's, we stress the safety and soundness of the system or the safety and soundness of producers. i think we have to keep learning. we have to diligently watch the situation evolve and watch what the system does in helping work with producers. >> i think obviously if we learned anything from 2008, it is the importance of capital and that is fannie, freddie, and

farm credit and it is the nation's major financial institutions. let me shift for all three of you to answer this if you would. there is increasing interest in my state, especially in the city i live in cleveland, in locally-grown food. in places like senator stab now's detroit and my large urban areas it is increasingly vibrant use for land. do you see farm credit institutions involved in these areas? what do we do to insure that these non-traditional farmers have access to credit? >> that is a very good question, senator. that is particularly an interest of mine. in fact i initially met senator stab now up in detroit once when i was at convention there for locally-grown and urban agriculture issues that were being discussed. the entree into urban agriculture, the way i look at

is is you're expanding the pie. i think it could help the system grow by getting more directly involved with urban agriculture. and as my colleague mentioned there, he visited a place in texas and i also went to a place in texas where i saw a young farmer he started out in his backyard with a little garden and he now has like, through the help of the system he has 200 acres and he is involved in the crs program and he also and one of his major customers is whole foods. so getting out and seeing what is actually happening out in the field is something that i hold near and dear and i would like to see more of it. >> mr. thompson, mr. hall, any additional thoughts on that?

thankthank you, chairman spearm. >> additional comments. fta required to introduce that in regional planning n addition to that many institutions have local food coordinators they work with people in the system to help support the local foods. >> [inaudible]. >> yes, i think we're very much focused on the producer side of this. usda, marketing development service, other agencies provide a lot of resources to the co-ops or groups that want to establish markets. i think the system is working closely with them to help assure a flow of product. >> understand, obviously you're more rural oriented than urban oriented, my city of cleveland had a population year i was born of about 950,000. today it is under 400. >> wow. >> there are lots of opportunities, i don't guess that is the right word for rural agriculture people are taking

advantage of. there are trendy new restaurants want to source locally and that can really matter. i ask all three of you always be aware of that. it is a relatively small part of your portfolio but a crucial area for a lot of things you all three believe in so thank you. >> i guess i'm the only one at the table now. [laughter]. first of all, even though chairman roberts isn't here, i think it is very good for all of us to say it's very appropriate oversight hearing to have and particularly with regulators to be effectively enforcing our rules and regulations that are designed to preserve an important system for agriculture particularly this hearing is appropriate because of the price

i shouldn't say all agriculture products but iowa where we're such a corn and bean state with the production of those being way below the cost of production. so count on people like you keeping the system very sound. i will ask any one of you want to answer this, but i don't expect all of you to get in, how detailed are the audits of the farm credit administration performed? by that i mean, does the farm credit administration randomly pick different loan portfolios and examine them line by line to see what is being reported matches up with the actual risk, or, are the audits more at the 30,000-foot level, in the nature looking at totals and final projections? >> very good question, senator. for a regulator i would say off

the top of my head it is all three. the primary is focus of the examinations are risk based to see, where could the system be in more jeopardy, if you will of not remaining safe and sound. each institution is examined once every 18 months. a report is issued once every 18 months but the examinations can be ongoing all year. the one bank we see the most risk is examined once a year. so these reports are issued once a year on that institution. that is pretty much the approach we take in our examination. >> you wanted to say something. >> i would like to add to it. the examiners are extremely well-trained. they take years of training

involved with them. the data comes from each inches institution all the time. we have a look at the institution's progress. by statute, they must be done every 18 months. we've sat down and gone through with an examiner demonstrating what they go through on the examination process. it is extremely thorough. each examiner reports to boards of directors of each institution privately at the end of each examination, to make sure the board of directors know what has occurred in the examination so it is very, very thorough. >> i gave two alternatives. would it be assumed that your answer to my question you randomly pick different loan portfolios and expand i am them line by line to see what is being reported matches up with actual risk? is that -- is that the way it is done? >> it is not random. it is planned. >> ox. now the second question is has

the farm credit administration asked a institution to divest of a loan that is not essential to the mission of the farm credit system? >> yes, sir, it has. there are instances fca taken action, corrective action and ask for a institution to actually divest. we can't give you specifics but that has happened, yes, sir. >> okay. my last question, before i ask the question, i hope i'm right by law. farm lenders can not take the credit but ability of members to advance conditional payment accounts. one of these accounts has an, online advertisement that as of yesterday stated a person could, quote, earn interest without tying up your funds. end of quote. quote again, easy access. your funds are always available to you. go online and use the phone, end

of quote. and the last quote, complete liquidity contrary to cds, end of quote. those are online advertisements. so could you explain to me how these accounts are any different from checking or savings accounts, these farm credit accounts, seem to function exactly like checking and savings accounts based upon the way that they're being marketed. >> senator, these accounts are not, are not checking accounts. they're, this particular procedure is allowed for under the act and they are actually prepayment or draft accounts where borrowers from the system can put funds in to pay their loans down. >> then you're telling me, i think you just told me that they are not like checking and savings accounts even though the

advertisements online seem to lead people to believe that? >> i would have to see the advertising but no, they're not checking accounts. >> senator, they're not insured by the federal deposit insurance corporation. they are at risk. and those fund are simply accounts that allow producers with long-term credits to build up and put their payments and have the funds still available to them. >> mr. chairman, i've asked the questions that i have to ask this panel. just in case i don't get back since we got two more votes, just in case i don't get back for the other, the other panel, i have a constituent, mr. vernon barker here, from iowa and i would like to have you ask him a couple questions i was going to ask if i don't get back? >> i would be delighted. >> thank you. >> go ahead. >> senator klobuchar.

>> thank you very much, senator roberts and thank you to all of you. mr. tonsager agriculture in rural america and we know how important credit is to rural america, loans, loan guarranties, other tools offeredded by the farm credit system as well as commercial community and farm banks. and we know that each of the lenders provide 40% of all farm debt, whether financing for farm real estate or farm production. often the farm credit system and our commercial banks work together on deals for benefit of farmers, ranchers and producers. farm credit banks provide loans that are non-ag loans. i heard from a lot of our small banks from minnesota they believe there is unfair advantage here how that is being handled. could you explain what is happening and your view on this. >> there are a couple things to consider i think. first, so when the farm credit system is loaning to an

individual producer, if that producer is a full-time farmer, the system can lend to him for all his credit needs, including if he establishes other businesses. so we've had some cases where farmers may choose to put up another business of some kind and they are allowed by statute to use the funds from the farm credit system for that purpose. so it appears to some people if we're lending directly to those businesses. so is one key element we run into time to time about concern on that matter. >> well, one thing that is always true is agriculture that the price of commodities is changing. that's why i want to make sure end-users and farm producers can safely use futures options and we've had some issues with this as you know in rural america. it's also a reason why providing credit to the ag sector is complicated. about 10-year ago our grain elevator operators were facing

some pretty big margin calls as you know. about two years ago we saw price volatility in the soy market, resulting of margin calls of 300 to 350 million. what role to farm credit system banks pay play when there are volatility in farm commodity prices? >> in the 10-year ago period i recall when that happened the system was able to help address that challenge for producers and was able to fund several billion dollars to meet margin calls, primary of grain elevators in that case, which were seeing huge price increase, less than 10 years ago, i suppose, but seeing a huge price increase and very large crop, so it was able to meet those needs. >> mr. hall with experience in tomorrowing yourself the same type much question. do you think the farm credit system is prepared to handle the current volatility in agricultural markets and how is the current market situation similar to those that occurred in '07 and '08 or how is it

different? >> i think there is a lot of similarities. the system are prepared and examiners of the system we have want to make sure they are prepared as we go into more periods of volatility. i will go back to the 1980s. one of the big difference between now and then is the cost of money. at that point a lot of farm income was going to pay off debt. i think farmers have paid down debt coming into this current period and i think with lower interest rates i think at the will be able to work their way through it. i don't see comparison to the '80s but bigger volatility and challenges to the producers and which present challenges to the system and to us as regulators and examiners. >> mr. spearman, you want to add anything to the volatility of the market and how you think farm credit is prepared to handle that? >> as my two colleagues have said, the system is well-positioned. strong capital position, strong liquidity position, strong earnings, if you will and

there's it's a lot different than what it was. i think back during the '80s there were issues with land that were property had been borrowed on and at unfavorable underwriting if you will standards that today that can't happen. there's, the underwriting standards are a lot more modern and a lot more favorable. so there's a lot that's going on today there that just did not exist at that time. >> back to you, mr. hall, in your testimony you talked about reforms that have been made after the agricultural credit crisis of the 1980s and that those reforms came about because of that crisis. do you think that there's a reason to make sure reforms to the system now? >> at this point i don't. it wouldn't be our position as a regulatory agency to propose any

reforms but i do think that as a result of those things, things like restructuring of the system has made it much more efficient and better able to help producer needs and the lending was important tool this committee approved in order to diversify the portfolio of system to help farmers ultimately making sure there is plenty of capital and credit available. >> all right. thank you very much. >> i thank the senator for her questions. that concludes the first portion of our hearing this morning. thank you, gentlemen, for appearing before our committee to the state of credit in farm country. and the role of the farm credit administration insuring our national farm credit system is both sound and operating within the bounds of statute. to my fellow members we would ask any additional questions that you may have for the record be submitted to the committee

clerk five business days from today or by 5:00 next thursday, may 26. we would now like to invite the second panel of witnesses to come to the table. the welcome all the members of the second panel. as you can see we are in a process of having three votes on the floor of the senate. i think to accommodate all members and do this in a way that would be consistent with the time constraint that we have, is that i'm going to introduce, i'm going to do executive privilege or chairman

privilege and introduce the gentleman from kansas. and then if you would give your statement. then by that time the distinguished ranking member will be here or whomever, we may have to recess the committee until somebody comes back. but at any rate i'm going to introduce mr. leonard wolff. leonard, if you give your statement, gentlemen, when you're introduced if you could give your statement, we'll let senator stabenow know what the order is. mr. wolf, leonard is the president and ceo and chairman of the board of united bank and trust in marriesville, kansas. i have to add home of the famous black squirrel. i know that this is the home of the famous black squirrel because some gentleman dresses

up as a black squirrel. >> it is not me. >> i know that. [laughter]. but he tapped me on my back an turned around to discover a life-sized black squirrel. i hope that the epa and fish and game folks and interior, i will not list them as being endangered. united bank and trust is a $600 million agriculture bank with 15 branches in nine northeast kansas communities. leonard is the past chairman of the kansas bankers association. currently serves as chairman of the american bankers association agriculture lending task force. no small task. graduate of southwestern college in winfield, kansas, mr. wolf began his banking career in 1979. first bill president and ceo of a bank at the young age of 28. i really appreciate you being

here and representing our great state. thank you again to the witnesses for appearing and basically, we will rotate back and forth. so, leonard, why don't you proceed. >> thank you, sir. chairman roberts, ranking member stabenow, members of the committee, my name is leonard wolfe. president, ceo and chairman of the board of united bank and trust in marriesville, kansas. we're largest agricultural lender of credit in kansas only to the the farm system the topic of today's hearing is very timely. while farm and ranch incomes over the past five years have been some of the best in history, there is no question that agriculture economy is slowing. despite this banking industry is well-positioned to meet the needs of u.s. farmers and ranchers.

interest rids continue to be near historic lows. the banks have people, capital and liquidity to help america's farmers and ranchers manage through any turbulence in the economy. importantly with the farm bill in place, farmers, ranchers and bankers have certainty from washington about future agricultural policy. in fifth activity farm banks defined as any bank with more than 15 1/2% of their loans made to farmers or ranchers, now provide over $100 billion in total farm loans. small farmers rely particularly on banks for funding. farm banks hold $48 billion in small farm loans with 11.5 billion of that in micro small farm loans. farm banks are healthy and continue to be forward-looking. growing capital and increasing reserves. this provides flexibility to serve our nation's farmers and manage risks associated with any downturn in the agricultural sector.

would i like to thank congress and especially the agricultural committees for repealing the borrower term limits on usda farm service agency guaranteed loans in the last farm bill. banks worked closely with usda to make additional credit available by utilizing guaranteed farm loan programs. on this subject of usda guaranteed farm loan programs i believe that congress needs to consider reforms to the programs, specifically to raise the capital on these loans due to rising costs of agriculture along with modernizing the programs. the usda farm service agency guaranteed loans have allowed farmers to continue to access credit from banks like mine as they grow and insuring credit access for farmers across the country. we remain concerned, however, with one area agricultural credit market, the farm credit system. over the years the farm credit

system has veered away from it is intended mission and now represent an unwarranted risk to taxpayers. as a government sponsored enterprise it represents a risk to taxpayers in the same way that fannie mae and freddie mac do. farm credit system was founded in 1916 to insure that young, beginning and small farmers and ranchers had access to credit. however that is not its focus today. the farm credit system has grown into an enormous, $304 billion system offering complex financial services. to put this into perspective, the farm credit system, if the farm credit system were a bank, it would be the nineth largest bank in the united states and it is larger than 99.9% of the banks in this country. the farm credit system benefits from significant tax breaks, valued at 1.3 billion in 2015, giving it a significant edge over private sector competitors.

moreover the farm credit system enjoys government backing formalized by creation of $10 billion line of credit with the u.s. treasury in 2013. it is shocking that nearly half of the entire farm credit system's portfolio is to individuals that each owe more than a million dollars. these are not young, beginning and small farmers and ranchers. the system now primary serves large, established organizations that do not need subsidized credit. it is clear that the farm credit system has become too large and unfocused, using taxpayer dollars to subsidize large borrowers. we urge congress to perform an autopsy on the system, to insure that their charter of helping young, beginning and small farmers is being followed. if it is not, we urge congress to remove the significant tax break provided to the system. gangs like mine are proud of the -- banks like mine are proud

of the work we do to support the nation's farmers and ranchers. the agricultural community is a critical part of our economy. america's banks are committed to serving it through good times and bad. thank you. i would be happy to answer any questions. >> our next witness is mr. gus parker, president and ceo of the community bank of olwine, iowa. >> thank you, mr. chairman. . . in community banks ever since.

he now serves as an elected federal delicate for the northern half of iowa for the independent community bankers of america. thank you again for testifying and welcome your statement. >> thank you, mr. chairman. as you stated i am guest worker, president and ceo of community bank of oelwein, i will. i thank you for the opportunity to testify on behalf of the icba, the independent community bankers of america. community bank of oelwein is $112 million full-service bank employing exceptional bankers who work with our customers providing them products they need while treating them like friends and family. our success is measured by the relationships we build with customers and individualized hands-on service. we're located in northeast iowa, serving akbar were to produce corn, soybeans and livestock. america's 6400 community banks primarily in rural areas and to

virtually every small town to the outstanding job providing credit in good times and bad. rural community banks provide more than one half of all credit from the banking sector. most farmers are advanced braking even right now and the only if you look at levels and low carryover debt. most threatened are the young, beginning, and small farmers, particularly if they have high debt levels or if they have little to no additional financing backing. they are the most at risk of exiting agriculture in the future. however, continuation of low farm prices will cause many farmers to exit, including those girly financially strong and larger farmers. we do urge senators to discuss this with the regulators so they don't overreact to this

situation. my testimony also makes recommendations on usda farm loan programs to keep our farmers in business. regarding fcs, year in 2015 total assets were $304 billion, 86% increase from just 10 years earlier of 163 billion. gross loans of 236 billion is a 92% increase from a decade earlier. fcs net income, $4.47 billion. and fcs effective tax rate is 4%. by comparison, my bank is taxed at 34% of federal, at 5% state, almost 40% total tax. 36% more than the fcs. fcs has a huge advantage in pricing loans enabling their

cherry-picking the fcs also grow their retained earnings greatly with his tax benefit. fcs has had tremendous growth the last decade. when fcs lobbied congress for expanded powers, and then abruptly received many of those powers to their complicit regular, the efca. we question efca's opinion that $10 billion line of credit at a time of record profits. fcs hasn't insurance fund supposedly to protect their lenders but we note their of our for loan losses is only 54 basis points. by contrast, my banks is 186 basis points. perhaps if fcs had an adequate insurance fund and higher loan loss reserves they would not need to dash to the treasury for a line of credit with no congressional involvement, as was recommended by the brookings institution report. why did fca act in secret behind congress is back?

we've surveyed bankers in every great graphical region on fcs issues in recent years. all bankers are alarmed by the fcs cherry-picking. fcs leverages tax and funding advantages as a government sponsored enterprise, gsc, to undercut loan rates on community banks biggest and financially strongest customers and ignores the less credit worthy borrowers. barbers larger, banks larger more stable borrowers are important to bank portfolios. allowing linking risks to spread over both small and large operations, and losing those biggest and best borrowers of its the risks in our banks of portfolios. this diminishes banks ability to serve agriculture. it lessens grid expertise available to the farmers. it lessens the credit choices for farm the borrowers and lessons the credit availability to rural america. the regulator wants to the fcs to broadly make nonfarm loans

while fcs will continue to make farm loans they want to also cherry-pick the very best nonfarm loans from bank or folios although not authorized by law. fca's proposed mission related investment regulation what about fcs lenders to gain approval for broad nonfarm lending programs labeled as investments. loans for manufacturing, apartment, office buildings would be eligible. fcs lack of awareness of co-banks seven and 25 million for by someone is alone. verizon and vodafone are located in the city and london. this is in rural iowa. it is a row america and it isn't authorized by statute. fca's excuse, allowed under the symbol entity provision of the act. not credible that provision is intended to allow enormous nonfarm loans of hundreds of millions of dollars in non-rural areas in the world's largest cities to corporations.

fcs cherry picks the very best loans. fcs seeks to lend aggressively for nonfarm purposes. fcs and go bank are going to very large nonfarm corporations. these activities undermine community banks ability to remain in business answer growth communities and farmers are this diminishes the number of will community banks. fcs is action threatens rural credit availability. they are wors worst than a racer that has veered off track. we suggest reforms are needed. thank you. >> appreciate your statement. our next witness is mr. doug stark of omaha or senator sasse will introduce you. we'll save a little time as senator sasse usually takes the constitution of the united states the 40 asks a question. [laughter] >> mr. starr, is the presidency

of credit from service of american frontier from credit. he has been with the farm credit system for 35 years. having served in several capacities begin as an assistant loan officer. during his career he also worked for the storm -- the farm credit system nation in washington for two years and its examiner and supervisor. mr. stark, thank you for joining us today, and hopefully we will turn to our distinguished ranking member for the next witness, but if not, i will try to do the best job possible. please go ahead with your statement. >> okay, thank you, mr. chairman. ranking member stabenow and members of the committee, appreciate the opportunity to test the path of the farm credit system. my name is doug stark and i am president and ceo of farm credits or visit of america come and frontier farm could headquartered in omaha and manhattan.

thank you very much for being original cosponsors of the congressional resolution, congratulatthengradually farm cs 100th anniversary. we are proud so many other colleagues on this committee are also resolution cosponsors. as i turn the pages, i've gotten stuck together, we and our colleagues in the bank instantly come before you today with good news. the industry recently announced record profits and the farm credit system it is financially strong as it's ever been. given the challenges facing farmers and ranchers today and extraordinary capital requirements of this industry, our nation's agriculture producers need the farm credit system and the commercial banking industry to be a viable and strong. the farm credit system as you've heard is made up of 78 individually and cooperatively owned and governed institutions. all have separate boards of directors elected by their customer owners.

there are no federal funds are taxpayer dollars appropriated for the ongoing operations of the farm credit system. net income to see the retained within the institution to build financial strength to serve customers or is paid out to customers in the form of patronage dividends. as one of our directors wrote in a letter to a fellow customer this year, quote the board believes the cooperative lending system allows us to bring a unique and important value proposition to the market. we want stockholder capital be held as close to the form as possible, unquote. that's the beauty of the farm credit system that congress had the foresight to create in 1916. farm credits cooperative business model is fundamentally different by design. a healthy system and help the commercial baking industry bring greater stability and competition to the credit market.

if we lose business to commercial banks, and we do, that means to lead the market is working for producers. producers. if we parted with a commercial bank to meet the credit needs of an enterprise serving rural america, and we do, that means the lending market is working for those communities. if a local bank cannot take on the risk of a beginning operation and refers a young farmer to farm credit, and it happens, that means the lending market is working for producers. we know competition makes all of us work hard each day to be more efficient and customer centric. we focus our time and energy on better serving producers versus asking for the elimination of competitors. their resume in the market for both commercial banks and farm credit.it. producers need us both. at farm credit administration we've been proactive in helping customers before for the challenges of the current cycle. we've council drug imports a working capital and restructure debt when appropriate. we are committed to working with

our customers through tough times. strong earnings have allowed farm credit to build equally strong capital levels to protect the consideration of low-quality. we have sophisticated stress testing procedures and are thoroughly examined by a regular an issue transparent, audited financial statements. the farm credit system does not pose a risk to u.s. taxpayers. in fact, the system has never been stronger. i personally take particular pride in the support we provide to our young and beginning of small producers. it is an important part of what we do everyday. while some would have you believe it's the sole reason we exist to our mission is spelled out by congresses to serve all of agriculture, large, small, young and old. in 2050 alone the farm credit system made more than 82000 loans to young producers than 80,000 once the beginning producers and 150,000 loans to small producers.

farm credits mission also extends to supporting role communities by financing vital infrastructure, helping bring clean water to rural families and reliable energy to farms and rural towns, and modern high speed telecommunications to connect rural america to the rest of the world. we help finance entities that are similar to our directly eligible borrowers as defined by congress. these similar entity loans always made in partnership with and at the invitation of commercial banks. in summary i see farmers and ranchers working hard to adjust to the current decline in commodity prices and profits. they take pride in what they do. many are trying to carve out a way for their sons and daughters to continue a family tradition. we are honored to serve agricultural producers, farmer owned cooperatives and producers who own the farm credit system. they are the farm credit system. on behalf of our customer owners we look forward to the next 100 years of serving rural

communities and agriculture. mr. chairman, i've a variety of statements with me from groups representing producers, farmer owned cooperatives and others that reinforce the importance of farm credits mission to ask that the statements they made a part of the hearing record. >> without objection. >> thank you. i would be placed respond to questions. >> thank you very much an apologist for the back and forth today. i know you understand about the votes that are occurring and members having to try to be several places at once, we very much appreciate all of your testimony, and it's an important part of our deliberations going forward. and i'm pleased i made it back in time to introduce mr. jed welder. as i mentioned earlier, is taking time from a busy planting season to provide a producer perspective today. mr. wilder said in both the u.s. marine corps and the u.s. army and several tours in

afghanistan, iraq and boston before returning to michigan to start a farm with his wife and two children. and he's a proud alumni, i should set alumnus of central michigan university not far from where i grew up. and serves on the niger board address for the michigan chapter of the farmer veteran coalition. we thank yo thank you very muchr joining us come and look forward to your testimony. >> thank you, chairman roberts and ranking member stabenow for that kind introduction and thank you to all the members of committee for this opportunity to testify today. i am the owner of the trinity farms come and midsize farm in greenville michigan were madame and i've raise corn, soybeans and we so begin growing several acres of hops. before returning home commission had the honor of serving as an officer in the army for more than a decade. myself included tours in iraq, afghanistan and bosnia, serving

as an armor officer with some of the greatest men and women in the world. in 2008 my wife and i made the difficult decision to leave the army after repeated deployments and an ever-increasing operational tempo. we want to start mothe with a fy and a farm in michigan did we loved moving to the country to join the challenges of this new profession but we quickly realized we needed both land and capital to be able to farm full-time. farmers are a close-knit group. you can't use google out of do things. you ask mentors and experienced farmers what has worked on difference. when asked older farmers in west michigan about access to credit they told me years ago i would've gone to a local bank and taken up and operating loan at that banks don't do that anymore. even a small form of art hundreds of thousands of dollars in seed, fertilizer and fuel each year. my small form uses older equipment but even that costs more than a mortgage most local banks would have a. greenstone farm credit services office in my county that was recommended

by prepared a business plan and walked through their door. they understood what it wanted to do and what i needed to run my operation. they make good solid recommendations and over time became a trusted partner. as my busines basis change in gy grew with me. today a far more than 800 acres and been able to continue farming my folks and farm since the 1960s. this summer as is building a grain drying and storage system my loan officer came out to see the progress and talk about it with me. we construct one of the first half yards in our county. as we did grandson walked to the yard to see what pops were. the office of 20 minutes away, and other crops in her area look at what the prospects for our lives are because they're the business of working with farmers. last fall and army buddy contacted me because she went to buy land near my father she talked to several banks as she worked in texas at the time and wanted to buy farmland near her family in michigan to everything she talked to told her we don't do that anymore.

when i put in contact with my greenstone office they told her that's what we did she ended up purchasing land and last friday my daughter and i planted corn. this fall when we harvest the crop this but it will realize the gramophone, even if my family expands its own operation. this is a challenging time for farmers across the country. right now we are planting corn and soybeans with prices near breakeven. many of us have second full-time jobs just to provide income to stay in the form. there's an exciting revolution in technology that will help us be more efficient but at the same time the cost of farming increased every year. please understand, farmers like veterans are not victims. we are not looking for a free ride. just a fair deal. having invented that works with the that knows my farm and the challenges i faced is more important than ever. there's an old saying on the farm, if it ain't broke don't fix it. the farm credit system is not broken. its affiliates mission. please don't break it now. i would like to leave with some

idea of how important this issue is to me. we are coming in and of planting season of our major crops. michigan farms have a very short window of time after last frost. families learn to an afterschool activities, trips or days off until the crops are into that being said when had the opportunity to testify before this committee, i parked my equipment i came into to appear before you today because this is important to my family and the families of all farmers. thank you and i would be happy to answer any questions you might have. >> well, thank you very much again, thank you to all of you. let me start, mr. welder. if you could tell us a little bit more about how greenstone farm credit has helped you both in looking to expand operations, even diversifying your father we talked earlier how hops is growing new industry in michigan did i know across the country. talked a little bit more about greenstone farm credit and the

role in helping to be able to do that. >> yes, ma'am. green zone has provided some educational things and allowed producers to use their facilities for getting together for conferences. they've also provided by local boat officers provide input as we talked about expanding our business to doing custom work for other farmers. as we look to increase and purchase the equipment they have worked with us, provided suggestions. when we traded in my 37 year old combine two years ago and bought a slightly new piece of equipment, that was something we financed with greased and. they have been with us every step of the way. michigan is on the cutting edge of new crop with hops. hops is something entirely new. so it was gratifying when they cannot and walked through the yard and took a look and learned what they were ending with the challenges were that we face with system industry. >> thank you. and i'm wondering, let me ask

you and anyone else on the panel that wants to respond that because in 2014 in the farm bill we create several new opportunities for veterans coming home to either go back to the farm were to go into farming, including support for the new editing farmer and rancher to government programs. in 2015 the national farmer federal coalition received funds from the farm bill to expand agriculture production, development, business develop and, skills absorbed. mr. welder company or a board member of the michigan chapter of a farmer veteran coalition to can you describe some of the ways that the coalition is working to support our military veterans in michigan? >> yes, made the that chapter is in its first year and it's very exciting what we are doing working with veterans in all different areas of agriculture. i've got friends i developed through the michigan farmer

veteran coalition that are raising grass fed pigs that are working in poultry, that are raising hops, that are raising crops all across the state. the farmer veteran coalition is looking to provide grants as those education operatives in both the upper and lower peninsula. we just held a cooperation with the nrcs, a soil conservation class. we've also had grant writing classes that we have held with veterans want to become farmers. some of the best friends in agriculture are now through the farmer veteran coalition. >> thank you. what anybody else want to respond to any programs or initiatives or benefits come is working with the veterans farmers or veterans anywhere working in the food system? >> senator, i would just add simply that we supported the efforts that you just described and that which is described here, both financially and with

our resources personally but as you may recall last summer the farm credit system helped sponsor you in washington a homegrown by he was a we are really trying to feature the products that are raised by our veterans and make them more visible to the general public so they can be featured and distributed and help them be successful. thank you. >> ranking member, i just want to add that we don't a special programs for our veterans because we've honored them our entire careers in the community banks. and that would include rate concessions, sometimes it made would be unusual in a normal situation to try to stimulate the vendor i appreciate mr. welder's office the farm credit of the. he sounds just like a community banker that i know. >> all right. let me ask and get i will start with -- of course the 2014 farm bill made a number of reforms to the farm safety net. we strengthened and expanded

crop insurance, particularly for specialty crops, and hops is one of those new specialty crops as i think as we expand. it will be interesting to see what other opportunities that or. and also to provide incentives for beginning farmers. wind producers approach your institution for loans how do you take these safety net programs into account? and how important are things like crop insurance particularly for beginning farmers we are looking at potential borrowers? >> that's been a key topic of focus of both this committee and of congress through these last couple of years. we are very pleased to get a farm bill last year that included a strong crop insurance program. i think this is one thing that banks and ourselves can agree upon. it's vitally important to the producers, and particularly the feature that is revenue comes from many of these produces because there really is a critical issue we have. most of the producers in the

marketplace today carry some level of crop insurance. they make their own choices around that. certainly we take that into strong consideration and especially so if they would decide not to consider it. in that case we would require significant improvements in the liquidity in order to continue their financing. for young producers is essential and the council them a lot regarding the level of coverage that they might carry and the risk that they have the capacity to undertake, primarily as a result of the fact that most of them don't have working capital if, in fact, something should happen to their crop production. so thank you for support of crop insurance and we would appreciate that continued support as we go forward. >> as we move from subsidies to risk management to crop insurance as well as conservation practices and other risk management tools, i think it is important that we keep a strong system. i'm also anxious to see as we go

forward have the opportunities we have created through a fruit and vegetable growers, specialty crops, whole foreign policy for small growers, small farmers and so on, how we can continue to expand those opportunities for small as well as large farms so that they have a risk management tool. i think it's really a board. let me ask -- >> could i respond to that as well. >> please spent the first panel was asked what are some of the differences going into potential crisis, the farm crisis this time as compared to the 1980s. i became a banker in 197090 that was my first experience was to expend the '80s, but that's one of the primary differences. there some real differences i think the producers are much higher capitalized and lower leverage vendor were going into this come into the 1980s.