These are trying times for the Farm Service Agency.
Less than six months into the fiscal year, funds guaranteeing bank loans to farmers have nearly run out. Proposed budget cuts also threaten to slash the agency's army of 2,600 lenders by 27%. What's more, its new preferred lender program-created to improve efficiency-has been criticized by Congress and some community bankers.
"The pressure-cooker situation inside the agency is undermining the effectiveness of the program," Agriculture Under Secretary August Schumacher Jr. testified before a House panel recently.
Carolyn B. Cooksie, the Farm Service Agency's deputy administrator for farm loan programs said the agency's problems are related to the sector's volatility.
"If your job has anything to do with farm loans and the farm economy, it's going to be hard," she said in an interview.
The agency's woes mirror those plaguing the nation's farmers: bad weather and low crop prices. Natural disasters have wiped out crops from Florida to Texas to the Dakotas, depleting the agency's $70 million emergency loan fund.
Meanwhile, commodity prices have fallen to their lowest levels in a decade. As farmers struggle with cash flow, more of their bankers are seeking Farm Service Agency guarantees to ensure repayment.
"Our lending is up tremendously over 1998," said Ms. Cooksie, adding that loan funds could be out of money within weeks.
The agency has roughly $3 billion a year to run its direct and guaranteed loan programs. Direct loans are made to farmers who otherwise cannot obtain credit. The indirect program guarantees up to 90% of a private-sector loan.
Increased demand has also put a strain on the Farm Service Agency's lending offices. Its best hope is for Congress to approve a supplemental increase so that the agency can hire more people and make more loans.
"We've run out of money in the past, but normally it's not until well into the third quarter," Ms. Cooksie said. "This is unlike anything we've ever seen before."
Not all the agency's troubles can be blamed on agricultural conditions, however.
Some members of Congress have criticized the agency for waiting so long to write the preferred lender regulations, which kicked in two weeks ago. Legislation authorizing it was passed seven years ago.
Ms. Cooksie, who has held her post since 1996, said Congress is "justifiably critical" of the time it has taken to implement the program.
"It's almost tragic that we go out with this new improved program at a time when we're going to run out of money," she said.
And some bankers said the new program, which makes it quicker and easier for qualifying banks to win a guarantee for their loans, does not go far enough. To be considered a "preferred lender," a bank must have made 30 agricultural loans in the last three years. According to Ms. Cooksie, about 250 banks meet that criteria.
"Doesn't that preclude a lot of good agricultural lenders?" asked Mark Scanlan, director of agricultural affairs at the Independent Bankers Association of America.
But Ms. Cooksie defended the three-year, 30-loan threshold, calling it "a good first step" in efforts to reduce paperwork and entice more banks into the program.
"Preferred lender means preferred lender," she said. "It means that we have a comfort level with you and that comfort level comes from how many times you've done it."
