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The Pricing of Federally Guaranteed Agricultural Loans: What Does it Indicate About Market Competition?

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  • Koenig, Steven R.
  • Dodson, Charles B.

Abstract

Past research on agricultural loan pricing is not extensive and has been hampered by a lack of suitable data. The Farm Service Agency (FSA) has guaranteed approximately 5 percent of farm debt of the Farm Credit System (FCS) and banks, the primary lenders to agriculture. As a requirement of the farm loan guarantee program, lenders must charge interest rates on these loans that are no different than their average or moderate risk farm loan customer. Therefore, rates on FSA guaranteed loans may be viewed as proxies for average farm loan interest rates. Using agency data bases, interest rates on nearly 100,000 farm loans guaranteed from fiscal 1999 to fiscal 2007 where compared with commercial farm loan rates and market-rate benchmarks. The study indicates that interest rates on FSA guaranteed loans are generally consistent with rates reported on various surveys of bank farm lending terms, but it also found that during certain periods guaranteed farm loan rates and non-guaranteed farm loan rates were less responsive to changes in market interest rates. In general, rates on guaranteed loans of the FCS were lower and more responsive to market rate conditions than guaranteed loans made by banks during the eight year study period.

Suggested Citation

  • Koenig, Steven R. & Dodson, Charles B., 2008. "The Pricing of Federally Guaranteed Agricultural Loans: What Does it Indicate About Market Competition?," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 5968, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea08:5968
    DOI: 10.22004/ag.econ.5968
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    References listed on IDEAS

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    1. Settlage, Latisha A. & Dixon, Bruce L. & Ahrendsen, Bruce L. & Koenig, Steven R., 2006. "A Detailed Look at Lender Participation in the Farm Service Agency Guaranteed Loan Program," 2006 Agricultural and Rural Finance Markets in Transition, October 2-3, 2006, Washington, DC 133089, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    2. Settlage, Latisha A. & Dixon, Bruce L. & Ahrendsen, Bruce L. & Koenig, Steven R., 2006. "Factors Determining the Use of Guaranteed Loans by U.S. Commercial Banks," 2006 Annual meeting, July 23-26, Long Beach, CA 21474, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    Keywords

    Agricultural Finance;

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