Ag Minute: The Farm Credit System and Its Impact on U.S. Agriculture

Across the United States, farmers hold an immense amount of debt, with that value growing over the last few years (even when adjusted for inflation). Many farmers utilize debt to purchase land, especially with the high values of land and its long-term strategic benefit to farmers, but additional debt is acquired for machinery and year-to-year operations. The farm sector in the U.S. alone holds assets estimated to be worth near $4.42 trillion, paired with debt of near $600 billion (USDA). This translates to roughly 87% equity across the broader U.S. agriculture system, with some farms having no debt and others carrying 60% or 70% debt loads. But who provides all of this borrowed money to American farmers?

The American Farm Credit System is largely unique to agriculture and very different from traditional banks. Traditional banks range in size from small community banks to major corporations like JPMorgan Chase & Co. They are typically owned by shareholders who expect annual returns, and their operations involve loaning out deposited funds and returning a portion of the interest earned back to depositors.

Farm Credit System banks operate differently. They do not take customer deposits and instead provide financing solely for agricultural businesses. Their loans are funded by issuing bonds and notes on national and global capital markets, whereas traditional banks rely much more on deposits. Another major difference is that Farm Credit banks are cooperatives, with each owner being determined by the loan volume they hold through that Farm Credit bank. Because of this, patronage (like dividends) can be paid out to each borrower annually, depending on the bank's profit. In practice, this often makes borrowing from Farm Credit lenders cheaper than borrowing from traditional banks. Referring to the earlier debt values of U.S. agriculture, the Farm Credit System commanded a loan volume of $428.9 billion in 2024. Financing so much of U.S.agriculture debt, if you were to compare the entire Farm Credit system to commercial banks in the U.S., it would be the 10th biggest commercial bank. So where did the Farm Credit system get its role?

In 1916, President Woodrow Wilson signed into law the Federal Farm Loan Act, which created the Federal Farm Land Bank system. The system at the time looked much different than it does today, with a significant amount of consolidation of what were once Federal Land Banks as well as of the Farm Credit cooperatives themselves. Originally, the system was established by the government because most farmers were unable to access credit and struggled with long-term loans from private lenders. However, by 1971, a new Farm Credit Act had created a new charter for the whole system and created full borrower ownership, becoming fully independent of the government and without any government capital. Since then, several trying times for agriculture have occurred, including the farm crisis in the 1980s, and due to this, many farm credit associations have merged and consolidated. There are currently four funding banks and 55 lending institutions, with Illinois being serviced by both Farm Credit Illinois and Compeer Financial.

In 2001, the Farm Credit Services of Central Illinois and the Farm Credit Services of Southeastern Illinois merged to create Farm Credit Illinois, which had a portfolio of around $5.7 5.7billion in 2024. Compeer Financials was created in 2017 by the merger of AgStar FinancialServices and 1st Farm Credit Services who commanded a loan portfolio of $34.3 billion in 2024. These lending banks split the state of Illinois in half geographically and are both funded by AgriBank, a funding bank based in St. Paul, Minnesota.

While there are territories for these banks, customers aren’t limited to the banks for their districts. Similar to commercial banks, success in banking with the Farm Credit System requires strong lender-customer relationships, as well as access to capital and competitive rates. Due to the cooperative nature of the Farm Credit System, all of the profits earned by the co-op are shared back as patronage to customer-owners and effectively lowers the cost to borrow for most farmers compared to commercial banks. This has created a competitive advantage for FarmCredit lending banks, and an advantage in securing affordable credit for farmers as well. The Farm Credit System plays a significant role in the stability and success of U.S. agriculture and continues to finance a substantial share of the nation’s agricultural debt.

To learn more about the volume of U.S. Farm Sector Assets and Debt, follow the link below: https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/assets-debt-and-wealth

To learn more about the Farm Credit System, their member-owners, and their financials, follow the link below: https://farmcredit.com/about-us/

To learn more about the Farm Credit System history, follow the link below: https://farmcredit.com/about-us/history/

To find a full list of the largest banks in the U.S. and their loan volume, follow the link below: https://www.federalreserve.gov/releases/lbr/current/

To learn more about AgriBank, follow the link below: https://www.agribank.com

To learn more about Farm Credit Illinois, follow the link below: https://www.farmcreditil.com

To learn more about Compeer Financial, follow the link below: https://www.compeer.com