Farmers' cooperative associations will need large amounts of credit to finance increases in the volume of farm marketings and in services needed by members. Many are using credit to enlarge and modernize their operations not only to maintain but increase efficiency. Some are attempting to improve services furnished to farmers by merging and consolidating with other cooperatives. These trends are likely to mean that cooperatives will continue to need large amounts of capital and credit in the period ahead.

INTEREST RATES

ON BORROWINGS

Funds used by the farm credit banks in their lending operations are obtained cheifly from the sale of their bonds and debentures to the investing public. Consequenly, the general level of interest rates is a prime factor in the cost of the banks' lending funds. This is affected not only by the economy of this country but sometimes by economies abroad. In contrast to the rather sharp upturn in 1963, short-term rates were relatively stable during most of 1964. Long-term rates were stable throughout the year.

The cost of new issues of 9-month debentures by the Federal intermediate credit banks fluctuated between 4 and 4.23 percent in 1964. However, the cost of debentures outstanding increased from 3.66 to 4.15 percent, reflecting the rising cost of debentures issued in 1963.

Stability in the cost of new issues of bank for cooperatives 6-month debentures was demonstrated by a fluctuation of only 10 basis points, between 4 and 4.10 percent, while the cost of outstanding issues rose from 3.87 to 4.07 percent.

The rise of short-term rates in this country that was precipitated by the increase in the British bank rate in the third week of November did not immediately affect the cost of debenture funds of the banks for cooperatives as their last offering in 1964 was on November 13. The Federal intermediate credit banks, however, coming to market on December 16 had to pay a total cost of 4.3 percent on a 9-month issue dated January 4, 1965.

Least affected was the cost of funds obtained by the Federal land banks from the sale of their bonds, as these are of longer term than the debentures issued by the credit banks and banks for cooperatives. The weighted average cost of land bank bonds outstanding increased from 4.17 to 4.19 percent, reflecting the retirement of three maturing issues which were on the books at varying costs, and the sale of four issues at prevailing rates.

ON LOANS

The impact in 1964 of the rising debenture costs of 1963 caused nine of the Federal intermediate credit banks to make further increases in their lending rates. One of the banks for cooperatives did likewise. At the end of 1964 rates of the credit banks for loans and discounts were 44 percent for 10 banks and 5 percent for 1 bank. In this range, approximately, was the rate of the remaining bank, which ties its rate to the cost of borrowed funds plus a fixed operating margin. Lending rates of the banks for cooperatives ranged from 4% to 5% percent. Rates on new loans by the Federal land banks remained in the range from to 5 to 54 percent, without change.

As in the case of the credit banks, the production credit associations continued in 1964 to feel the impact of the 1963 rise in the level of interest rates. The higher loan and discount rates of the credit banks resulted in higher lending rates because some production credit associations raised their lending rates. However, at the beginning of 1965 the rates charged by about half the associations remained at 6 percent or less.

I am confident that the farm credit system will continue to be able to obtain competitively in the capital market the funds needed for the loans it is called upon to make. These I expect will be of somewhat greater volume than in previous years. I believe that the variety of sources of credit for farmers and ranchers and their cooperatives provided by the farm credit system is of continuing benefit to them.

JUSTIFICATION STATEMENT

PURPOSE STATEMENT

The Administration supervises, examines, and provides facilities and services to a coordinated system of farm credit banks and associations making loans to farmers and their cooperatives. A fundamental principle of supervision is the encouragement and development of agricultural cooperative agencies, with complete farmer ownership the ultimate objective of the agencies supervised. Services and facilities furnished by the Administration facilitate the operations of the several agencies and their progress toward farmer ownership. Typical services are: custody of collateral for bonds and debentures, assistance in financing and investments, credit analysis, development of land appraisal standards and policies, preparation of reports and budgets, and preparation and distribution of information on farm credit. All expenses of these activities are paid by assessments collected from the banks and associations of the farm credit system. Since December 4, 1953, the Administration has been an independent agency under the direction of a Federal Farm Credit Board (12 U.S.C. 636b). The Administration, originally created by Executive Order No. 6084 on May 27, 1933, was transferred to the Department of Agriculture on July 1, 1939, by Reorganization Plan No. 1.

On December 31, 1964, the Administration had 214 full-time employees, approximately half of whom were located in the field. These field employees are farm loan registrars, reviewing appraisers, and farm credit examiners.

ADMINISTRATIVE EXPENSES

[Authorization for the obligation of assessments collected from farm credit banks and associations]

The increase of $59,000 for 1966 over 1965 is necessary to cover the cost of vacancies which will be filled for the full year 1966.

Supervision and examination of farm credit banks and associations The Farm Credit Administration is a supervisory agency established to provide the banks and associations of the farm credit system with centralized and coordinated supervision and examination, and to furnish facilities and services deemed essential to the operation of the system and its progress toward complete farmer ownership.

The Farm Credit Act of 1953 reestablished the Farm Credit Administration as an independent agency. It created a Federal Farm Credit Board responsible for the direction, supervision, and control of the Administration and its operations (12 U.S.C. 636b). The Board consists of 13 members. Twelve are appointed by the President with the advice and consent of the Senate. The 13th is designated by the Secretary of Agriculture. In making appointments to the

46-950-65-pt. 2-30

Board, the President considers nominations made by Federal land bank associations, production credit associations, and borrowing farmer cooperatives in each of the 12 farm credit districts. The act reaffirmed the concept of progressively greater borrower participation in the management, control and ultimate ownership of the credit agencies supervised by Farm Credit Administration. Progress toward this objective since December 4, 1953, the effective date of the act, and other developments are outlined in the section headed "The Farm Credit System."

Significance of the program.-Effective Farm Credit Administration supervision and examination have contributed to the establishment of the farm credit system. The system has developed sound administrative management and the facilities and services made available by the Administration have enabled it to serve farmers effectively. The steady increase in the number of farmers participating in cooperative credit indicates their confidence in the farm credit system, and demonstrates that with effective leadership such a credit system is desirable and feasible. Objectives of the farm credit system which can be attained best through coordinated effort are to: assure farmers a permanent source of credit by strengthening the farm credit banks and associations; assure dependable sources of loan funds, which are of first importance to any credit system, by maintaining the confidence of investors in farm credit bank securities through adherence to sound credit principles and maintenance of strong financial structures; and accomplish the retirement of Government capital without impairing the system's ability to provide for the sound credit needs of agriculture.

TABLES REFLECTING TRENDS IN AGRICULTURAL CREDIT
Prices received and paid by farmers and farm income, United States

1 Includes Government payments. Excludes changes in farm inventories.

• Preliminary.

¡ Preliminary.

2 Value of livestock, farm equipment, crops on hand, and household furnishings. Excludes CCC price-support loans.

Amount of loans outstanding to farmers and percent of total held, by types of lenders, United States, Jan. 1, 1964 and 1963 i

Loans to and discounts for financing institutions other than PCA's only.
Excludes loans guaranteed by Commodity Credit Corporation.

Source: U.S. Department of Agriculture.

Loans made to agriculture by the Farm Credit banks and associations
[In millions of dollars]

Loans outstanding to agriculture held by the Farm Credit banks and associations

LENDING FUNDS OF THE FARM CREDIT BANKS AND ASSOCIATIONS

The lending funds used by the Farm Credit system are obtained primarily from the sale in the investment market of bonds and debentures of the Farm Credit banks. In this way, the Farm Credit banks and associations provide an effective link between farmer-borrowers and the investing public. The Farm Credit securities-consolidated Federal farm-loan bonds, consolidated Federal intermediate credit bank debentures, and consolidated debentures of the banks for cooperatives—are not guaranteed by the Government either as to principal or interest but are secured principally by notes and mortgages deposited as collateral with the Farm Credit Administration. These securities are considered by the market to be prime investments.