Pub. 12 2017-2018 Issue 6

competitive with the traditional ag co-ops in purchasing grains from farmers. Read the article at http://on.wsj.com/2prEqqN. Although not mentioned in the article, possibly the ag co-ops set up by the grain companies will be able to begin borrowing from CoBank, the only FCS institution authorized to lend to ag co-ops. Efforts are underway inCongress tomodify Section 199A in order to reduce, if not eliminate, the unintended effects it is having on agriculture. However, the longer this section is in effect, the harder it will be to modify or repeal it because grain companies as well as farmers and those who finance agriculture will have adapted to it and therefore will resist efforts to modify it. The furor that Section 199A has created should trigger a congressional reviewof all aspects of agricultural taxation, including the highly favorable tax treatment the FCS has long enjoyed. While the tax-rate reduc- tions Congress just enactedhave helped somewhat reduce the FCS’ tax advantages on loans secured by real estate, as reported in the January 2018 edition of Farm Credit Watch, the FCS still enjoys a substantial tax advantage over commercial banks, which is magnified by the FCS’ favorable funding-cost advantage by virtue of being a government-sponsored enterprise (GSE). FCA Chairman OK With Deferring Loan Principal Repayments The January 2018 edition of Farm Credit Watch reported that Omaha, Neb.-based, FCSAmerica, which serves all of South Dakota, Iowa, Nebraska, and Wyoming, had sent a letter to some of its member-borrowers offering to “defer the principal portion of all payments due in 2018 on your fixed or variable rate real estate loan(s).” Several bankers and other ag-finance experts echoed my concern about the wisdom of FCSAmerica’s offer. One banker even suggested that a deferral of a loan’s principal repayments should cause the loan to be classified as non-performing or otherwise impaired. Much to my surprise, Dallas Tonsager, the chairman and CEO of the Farm Credit Administration (FCA), in a January 30, 2018, speech to the Farm Credit Council (FCC), the FCS trade association, effectively endorsed what FCSAmerica has offered to its borrowers and encouraged other associations to do the same. Specifically, Tonsager stated that at a meeting last year, “I learned that some associations are giving some of their bor- rowers the option to defer the principal portion of their 2018 payments. This gives these producers the chance to re-amortize the outstanding balance over the remaining life of the loan. It also gives them additional working capital, which in turn gives them the flexibility and time to make needed adjustments to their operations.” Read the speech at http://bit.ly/2HOuY8G. It appears that Tonsager is suggesting that FCS associations engage in loan restructuring without calling it that, which would have the effect of underreporting loan-quality issues within the FCS. Given that the USDA has forecast another decline in Bert Ely — continued on page 22