The share of the agricultural lending market held by commercial banks has grown substantially in the last two decades, mainly at the expense of the rival Farm Credit System.

Still, the system has maintained a virtual lock on one type of borrower: the farm cooperative.

USDA statistics show that one Farm Credit lender alone, Denver-base CoBank, made more than half of all loans to co-ops in 1997, while banks had just a 16% share of the co-op market. And CoBank's share is expected to be even greater now that it has merged with another co-op bank, St. Paul Bank for Cooperatives in Minnesota.

Agriculture co-ops are typically owned and operated by farmers and other ag-related business owners. The number of farmers belonging to a co-op the biggest names are Land O' Lakes, Sunkist, and Diamond Walnuts can range from a few dozen to several hundred.

Small banks have an especially hard time penetrating this market because most co-ops' credit needs are simply too large. And banks in general have been somewhat skittish about lending to co-ops because few member farmers are willing to pledge personal assets as collateral, says John Blanchfield, manager of agricultural programs at the American Bankers Association.

Nevertheless, it is a market bankers say they cannot afford to ignore. The nation's co-ops borrowed about $20 billion in 1998, representing about 12% of the total dollars lent to the agriculture industry.

-- Alan Kline

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