-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO/RCED-90-49BR		

TITLE:     Financial Condition of American Agriculture as of December 31, 1988

DATE:   11/16/1989 
				                                                                         
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GAO/RCED-90-49BR

GAO Briefing Report, to the Chairman, Senate 
Committee on Agriculture, Nutrition, and Forestry and the House
Committee on Agriculture

Financial Condition of American Agriculture as of December 31, 1988 

GAO United States General Accounting OffIce

Washington, D. C. 20548 Resources, Community, and Economic Development
Divbion

B- 220507 November16,1989 The Honorable Patrick J. Leahy Chairman, Committee
on Agriculture, Nutrition, and Forestry United States Senate

The Honorable E (Kika) de la Garza Chairman, Committee on Agriculture House
of Representatives This report is the fifth in a series of GAO reports
covering the financial condition of American agriculture. 1 We stated in our
previous reports that we would continue to monitor and report on the
agricultural situation following several years of financial stress. Our
previous reports

presented data that was, for the most part, current through the end of
calendar years 1984 through 1987, respectively. At the request of your
Committees, this briefing report presents information on the financial
condition of American agriculture as of December 31, 1988. Our analysis of
numerous key economic and financial indicators shows that the overall
financial condition of the nation's farmers and their lenders continued to
improve in 1988. For example, large increases were experienced in
agricultural exports, in the total value of farm assets and especially in
the value of farmland, and in farmers' cash income. In addition, substantial
declines were experienced

in the total level of farm debt, the amount of problem debt, and in the
number of agricultural banks that failed or are vulnerable to failure. On
the other hand, federal outlays

to support the nation's agricultural sector, although lower than in 1987,
continued at a very high level. This briefing report follows the format of
our last three reports. It is divided into five sections. The first provides
an overall summary on the financial condition of American agriculture
following 1988 operations. The second contains information on the economic
environment facing agriculture. The third and fourth contain information on

IOur four previous reports are listed in "Related GAO Productstl in this
report. (See page 92.)

B- 220507 the farm sector and the farm finance sector, respectively. The
last section describes our objectives, scope, and methodology in conducting
this review and preparing this briefing report. Our study began in May 1989
and was conducted by gathering and analyzing numerous data from public and
private sources, including the U. S. Department of Agriculture and its
Economic Research Service and Farmers Home Administration, the Federal
Deposit Insurance Corporation, the Federal Reserve System, the Farm Credit
Administration, and the Farm Credit System.

Portions of this briefing report have been discussed with officials of the
Economic Research Service, the Farmers Home Administration, the Federal
Deposit Insurance Corporation, and the Farm Credit Administration. Their
comments have been incorporated where appropriate. However, we did not
obtain official agency comments on this report because of its informational
nature.

Copies of this briefing report are being sent to the Chairmen of the Senate
Committee on Banking, Housing and Urban Affairs and Senate Committee on the
Budget, and to the Chairmen of the House Committee on Banking, Finance and
Urban Affairs and House Committee on the Budget. In addition, copies are
being sent to the Secretary of Agriculture; the Director, Office of
Management and Budget: the Chairman, Board of Directors of the Federal
Deposit Insurance Corporation: the Comptroller of the Currency; the
Chairman, Board of Governors of the Federal Reserve System; the Chairman,
Farm Credit Administration: and other

interested parties. Copies will be available to others upon request. If we
can be of further assistance, please contact me at (202) 275- 5138.

Major contributors to this briefing report are listed in appendix I. John W.
Harman Director, Food and Agriculture Issues 2

CONTENTS Pace

1 LETTER SECTION

1 REPORT SUMMARY The Economic Environment: Continued Improvement in 1988 The
Farm Sector: Financial Position Continued to Improve in 1988 The Finance
Sector: Farm Lenders' Financial Stress Continued to Lessen in 1988

2 3

THE ECONOMIC ENVIRONMENT: CONTINUED IMPROVEMENT While Production,
Consumption, and Total Year- End Stocks of Some Key Farm Commodities
Decreased, Farm Prices Increased Stocks of Wheat, Coarse Grains, and
Soybeans On Hand Decreased U. S. Agricultural Exports Increased U. S. Market
Share for Key Farm Commodities Increased Trade- Weighted Value of the U. S.
Dollar Declined Federal Outlays for Agriculture Decreased

THE FARM SECTOR: FINANCIAL POSITION CONTINUED TO IMPROVE Farmland Values
Increased Rates of Return on Assets and on Equity Continued Positive While
Farmers' Gross Farm Income Increased, Their Net Farm Income Decreased
Farmers' Gross and Net Farm Cash Income Increased Farmers' Off- Farm Income
Continued to Increase Farmers' Total Production Expenses Increased, but
Interest Payments Decreased

Indexes of Prices Received and Paid by Farmers Increased Most Farmers
Continued to Have a Favorable Debt- to- Asset Ratio Many Farms Had a
Favorable Income and Debt Level, but Most Were in a Marginal or Vulnerable
Position

3 9

10 13

17 21

23 25 27

29 31 33

35 37 39 41 43 45 47

49 51

53

Pace SECTION

Most Farm Debt Was Held by Commercial Farms 55 Farm Employment Decreased 57
Agricultural Business Failures Decreased 59

4 5 APPENDIX

I MAJOR CONTRIBUTORS TO THIS BRIEFING REPORT TABLE

2.1 2.2 2.3 2.4 2.5 u

THE FINANCE SECTOR: FARM LENDERS' FINANCIAL STRESS CONTINUED TO LESSEN While
Overall Total Farm Debt Continued to Decline, Some Lenders' Farm Debt
Increased Nonperforming and/ or Delinquent Farm Debt Decreased Total Farm
Loan Net Charge- Offs and Nonaccrual Loans Decreased FCS' Earnings Continued
to Improve FLB and PCA Nonperforming Loans Decreased FLB- and PCA- Acquired
Property Holdings Again Decreased Farm Loan Foreclosures by Life Insurance
Companies Decreased Agricultural Bank Failures Decreased Problem
Agricultural Banks Decreased Agricultural Banks Vulnerable to Failure
Decreased While Some Improvement Has occurred in FmHA's Loan Portfolio, A
Large Amount of Delinquent Loans Remain Past Due Loan Payments to FmHA
Continued to Increase

61 63 65 67 69 71

73 75 77 79

81 83 85 OBJECTIVES, SCOPE, AND METHODOLOGY 87

90 U. S. Production, Consumption, Year- End Stocks, and Market Prices for
Key Commodities, 1987 and 1988 23 Supply of Key Commodity Stocks on Hand at
Year- End, by Number of Months, 1987 and 1988 25 U. S. Agricultural Export
Statistics, 1987 and 1988 27 U. S. Market Share of Total World Trade for
Three Key Commodities, 1987 and 1988 29 Yearly Average Multilateral Trade-
Weighted Index Value of the U. S. Dollar, 1987 and 1988 31

4

Paqe TABLE

2.6 3.1

3.2 3.3 3.4 3.5 3.6 3.7

3.8 3.9

3.10 3.11 3.12

4.1 4.2 4.3 4.4 4.5

4.6 4.7 4.8 4.9 4.10

Federal Agricultural and Total Outlays, 1987 and 1988 33 Average Per- Acre
Farmland Values in States with the Greatest Increases, February 1, 1988, to
February 1, 1989 37

Rates of Return on Assets and on Equity, 1987 and 1988 39 Farmers' Gross and
Net Farm Income and Total Production Expenses, 1987 and 1988 41 Farmers'
Gross and Net Farm Cash Income and Cash Expenses, 1987 and 1988 43 Farmers'
Off- Farm, Net Farm Cash, and Total Cash Income, 1987 and 1988 45

Farm Production Expenses, 1987 and 1988 47 Indexes of Prices Received and
Paid by Farmers, 1987 and 1988 49

Number of Farms and Amount of Farm Debt, by Debt- to- Asset Ratio, 1987 and
1988 51 Number of Farms and Amount of Farm Debt, by Net Farm Cash Income and
Solvency Position, 1987 and 1988 53 Number of Farms and Amount of Farm Debt,
by Farm Sales Class, 1987 and 1988 55

Agricultural and Total Employment, 1987 and 1988 57 Number of Agricultural
Businesses That Failed, 1987 and 1988 59 Total Farm Debt, 1987 and 1988 63
Nonperforming and/ or Delinquent Farm Debt Held by Major Institutional
Lenders, 1987 and 1988 65 Farm Loan Net Charge- Offs and Nonaccrual Loans
for Various Lenders, 1987 and 1988 67

Net Income for FLBs and PCAs, by FCS District, 1987 and 1988 69 FLB and PCA
Nonperforming Loans: Amount and

Percent of Total Outstanding Loans, by FCS District, 1987 and 1988 71 Gross
Value of FLB- and PCA- Acquired Property, by FCS District, 1987 and 1988 73
Life Insurance Companies' Farm Loan Foreclosure Statistics, 1987 and 1988 75
Failed Banks: Agricultural and Nonagricultural, 1987 and 1988 77 Problem
Banks: Agricultural and Nonagricultural, 1987 and 1988 79 Vulnerable Banks:
Agricultural and Nonagricultural, 1987 and 1988 81

5

Paue TABLE

4.11 4.12 FIGURE

1.1 1.2 1.3

1.4 1.5 1.6

2.1 2.2 2.3 2.4

2.5 2.6 Federal Agricultural Outlays, Fiscal Years 1980- 88 3.1 3.2 3.3

Average Per- Acre Value of Farmland, 1980- 89 Rates of Return on Assets and
on Equity, 1980- 88 Gross and Net Farm Income and Production Costs, 1980- 88
3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 Agricultural Employment, 1980- 88 3.12 u
Agricultural Business Failures, 1984- 88

FmHA Outstanding Principal and Delinquent Loans, by Program, 1987 and 1988
Aging of FmHA's Past Due Amount, 1987 and 1988 U. S. Agricultural Exports
and Trade Surplus, 1980- 88 Farmers' Total Cash Income, 1980- 88 Number of
Farms by Debt- to- Asset Ratio, 1985- 88 Number of Farms by Income/ Solvency
Position, '1985- 88 Total Outstanding Farm Debt, 1980- 88 Total
Nonperforming and/ or Delinquent Farm Loans for Major Institutional Lenders,
1984- 88 U. S. Production, Consumption, and Year- End

Stocks for Key Commodities, 1980- 88 Supply of Key Commodity Stocks on Hand
at Year- End, by Number of Months, 1980- 88 U. S. Agricultural Exports,
1980- 88 U. S. Share of World Market for Key Commodities, 1980- 88 Yearly
Average Index Value of the U. S. Dollar, 1980- 88

Gross and Net Farm Cash Income and Cash Expenses, 1980- 88 Farmers' Off-
Farm, Net Farm Cash, and Total Cash Income, 1980- 88 Farm Real Estate, Non-
Real Estate, and Total Interest Expenses, 1980- 88 Indexes of Prices
Received and Paid by Farmers, 1980- 88 Percent of Total Farm Debt by Debt-
to- Asset Ratio, 1985- 88

Percent of Total Farm Debt by Income/ Solvency Position, 1985- 88 Percent of
Total Farm Debt by Farm Sales Class, 1985- 88 83 85

12 14 15 16 18

19 22 24 26

28 30 32 36 38

40 42 44 46 48 50

52 54 56 58

6

FIGURE Pase 4.1 4.2

4.3 4.4 4.5

4.6 4.7 4.8 4.9 4.10 4.11

4.12 Percent of Total Farm Debt Held by Lenders, 1986- 88 Major
Institutional Lenders' Percent of Loan Portfolio Nonperforming and/ or
Delinquent, 1986- 88 Farm Loan Net Charge- Offs by Commercial Banks, FLBs,
and PCAs, 1984- 88

FCS Net Income, 1980- 88 Amount of FLB and PCA Nonperforming Loans, 1984- 88
FLB- and PCA- Acquired Property Holdings, 1980- 88 Farm Loan Foreclosures by
Life Insurance Companies, 1980- 88 Agricultural and Nonagricultural Failed
Banks, 1982- 88 Agricultural and Nonagricultural Problem Banks, 1982- 88
Agricultural and Nonagricultural Vulnerable Banks, 1982- 88 FmHA Loans by
Program: Amount Owed by

Delinquent Borrowers, 1980- 88 Aging of FmHAls Past Due Amount, 1980- 88 62

64 66 68

70 72 74 76 78 80

82 84 RELATED GAO PRODUCTS 92

ABBREVIATIONS ccc Commodity Credit Corporation ERS Economic Research Service
FCA Farm Credit Administration FCS Farm Credit System FDIC Federal Deposit
Insurance Corporation

FLB Federal Land Bank FRB Board of Governors of the Federal Reserve System
FmHA Farmers Home Administration GAO General Accounting Office PCA
Production Credit Association USDA U. S. Department of Agriculture

SECTION 1 REPORT SUMMARY

We previously reported that American agriculture yxperienced a boom during
the 1970s with rapid expansion and growth. However, due to a reversal in the
economic forces that led to that growth, American farmers and their lenders
experienced adverse economic and financial conditions which began in the
early 1980s and continued through 1986. On the other hand, as we reported
last year, the

overall financial condition of the nation's farmers and their lenders
generally improved in 1987 from the financial stress experienced in the
previous years. Continued improvement in the financial condition of American
agriculture occurred during 1988. Most economic and financial indicators
were positive following 1988 operations. Although federal outlays to support
the nation's agricultural sector were lower than in 1987, they continued at
a very high level during 1988.

In this briefing report on the financial condition of American agriculture
as a result of 1988 operations, 2 we report that -- the economic environment
surrounding the farm sector continued to improve, -- the financial position
of the farm sector also continued to improve, and -- the financial stress of
the farm finance sector continued to lessen. This section of the briefing
report provides summary information covering each of these topics: sections
2, 3, and 4 provide detailed information. THE ECONOMIC ENVIRONMENT:
CONTINUED IMPROVEMENT IN 1988

The economic environment surrounding the farm sector continued to improve in
1988, building on the general improvements of 1987. While American
agriculture again produced large amounts of many key farm commodities, total
production was generally lower in market year 1988 compared with 1987.
Coarse grain and soybean production

'Our previous reports on the financial condition of American agriculture are
listed in "Related GAO ProductsI' in this report. (See page 92.) 'Unless
otherwise noted, yearly information presented in this report is as of
December 31, and all values are in current dollars. In addition, the sources
listed for the figures in sections 2, 3, and 4 also apply to the tables on
the pages opposite those figures.

10

decreased somewhat while wheat production increased slightly. Also,
consumption of these key farm commodities was mixed in market year 1988,
with soybean and wheat consumption decreasing and coarse grain consumption
increasing slightly. For example, total coarse grain production declined by
almost 15 percent while consumption rose by about 1 percent in 1988 compared
with 1987. (See pp. 22- 23.)

Year- end stocks of these three key farm commodities (coarse grains,
soybeans, and wheat) decreased by more than 17 percent in market year 1988
from the levels in market year 1987. Past high stock levels had a depressing
effect on the prices of farm commodities. In 1988, prices for various
important farm commodities increased considerably, including corn which
increased by 29 percent, soybeans by 23 percent, and wheat by 6 percent.
(See pp. 22- 23.)

In addition, based on U. S. domestic average consumption rates, the number
of months of wheat, coarse grain, and soybean stocks on hand at the end of
market year 1988 decreased compared with market year 1987. However, despite
the decrease, the number of months of coarse grain stocks continued to
exceed the quantity that was on hand at the end of market year 1983, which
subsequently was followed by the U. S. Department of Agriculture's (USDA)
payment- in- kind program. (See pp. 24- 25.)

U. S. exports of agricultural products increased in both value and volume in
1988 compared with 1987, the second consecutive annual increase. The value
of agricultural exports increased by 29 percent from almost $29 billion to
$37 billion. The volume increased by 11.5 percent from 133 million metric
tons to 148.5 million metric tons. Large increases in the volume of coarse

grain and wheat exports offset a decrease in the volume of soybean and
soybean product exports. Also, U. S. imports of agricultural products
increased to $21 billion, or by 3 percent, in 1988 compared with 1987. As a
result, the U. S. agricultural trade surplus increased 94 percent to $16
billion. Figure 1.1 shows the trend in the value of agricultural exports and
trade surplus since 1980. (See pp. 26- 27.)

U. S. agricultural exports increased in 1988 for a variety of reasons,
including lower prices for U. S. agricultural products in foreign markets
because of the decline in the value of the dollar, decreased supply from
some competitor countries primarily caused by the effect of adverse weather
on production, and a continuation of federal export subsidy programs, such
as USDA's Export Enhancement

Program. (See pp. 26- 27.) The trade- weighted value of the dollar fell 4
percent in 1988 compared *with 1987. The decline occurred primarily in
relation to other heavily traded industrialized countries' currencies. This
decline in the dollar contributed to an 18- percent increase in the

11

value of exports to developed countries in 1988. In addition, subsidies
offered under federal export programs made U. S. products more competitive
in developing countries and contributed to an almost 33- percent increase in
1988 exports. (See pp. 30- 31.) Fiaure 1.1 U. S. Aaricultural Exports and
Trade Surnlus. 1980- 88 Ddlan In Billions

0 1959 Year

1961 1992 1963 1904 1955 1950 1957 19B5 - Exports I I I I Trade Surplus

Source: USDA. Although federal outlays to support the nation's agricultural
sector declined by 35 percent in fiscal year 1988 compared with fiscal year
1987, they remained at a very high level, totaling $17.2 billion. Commodity
price and farm income support programs, such as nonrecourse commodity loans
and cash deficiency payments, accounted for $12.5 billion of the fiscal year
1988 outlays; other farm income stabilization programs and agricultural
research and services accounted for the $4.7 billion balance. Since fiscal
year 1980, federal agricultural outlays have totaled $173 billion. (See

PP- 32- 33.) In addition, while the nation experienced one of the worst
droughts in its history in 1988 (based on area covered and according to
USDA's classification of extreme or severe drought areas), the overall
effect of the drought was less than had been anticipated. According to USDA,
while the 1988 drought had an adverse effect on agricultural production,
supplies were sufficient

12

to meet both U. S. domestic and export demand. However, the large surpluses
of farm commodities that existed in the recent past are much smaller as a
result of the drought and this contributed to increases in prices for farm
commodities. ERS reported that, while

the effects of the drought on farmers were more noticeable and received
considerable public attention, its effects on the components of the food and
fiber system and on rural communities was less evident. THE FARM SECTOR:
FINANCIAL POSITION CONTINUED TO IMPROVE IN 1988

The improvement in the financial condition of the nation's farm sector,
which began in 1987, continued in 1988. For example, most farm sector
balance sheet and income statement indicators that had turned positive or
shown improvement in 1987 continued to improve in 1988.

The value of total farm assets increased 6 percent in 1988 compared with
1987, the second consecutive increase. The increase in total asset values
continued to be primarily attributable to an increase in real estate values.
The national average value of farmland-- the main farm asset -- increased by
almost 6 percent from February 1988 to February 1989. Forty- two of the 48
contiguous states had increases in farmland values; the states with the
greatest percentage increases are located primarily in the northeastern part
of the country (Pennsylvania had the greatest increase-- 21 percent) and the
Corn Belt and Northern Plains. However, 3 states-- Texas, Wyoming, and
Arizona-- continued to experience decreases in farmland values. In addition,
three other

states -- Colorado, Oregon, and Utah-- had no change in farmland values.
(See pp. 36- 37.) The improvement in farmers' rates of return on assets and
on equity also continued in 1988, with both total rates remaining positive
and rising. While income returns declined slightly in 1988 compared with
1987, they remained positive. Also, capital

gains returns increased significantly. From 1981 until 1987, positive income
returns had been offset by capital losses. (See pp. 38- 39.)

Farmers' gross farm income increased by 3.5 percent in 1988 compared with
1987; however, total production expenses increased 6 percent, resulting in a
3- percent decrease in net farm income. Net farm income in 1988 totaled
almost $46 billion. The increase in gross farm income is primarily
attributable to increases in gross farm cash income, which resulted from
improved livestock and crop cash receipts, and nonmoney income. These
increases more than offset decreases in direct government payments, farm-
related income, and inventory values. However, the $6- billion increase in
.J

13

gross farm income was not sufficient to offset the $7.5- billion increase in
total production expenses, which resulted in about a $1.4- billion decrease
in net farm income. (See pp. 40- 41.) In terms of cash income, gross farm
cash income increased by $9.6 billion, or 6 percent, in 1988 which offset a
$7.4 billion, or 7- percent, increase in cash expenses, and resulted in a
record high net farm cash income of $59.9 billion. The increase in net farm
cash income, combined with $51.7 billion in farmers' cash income from off-
farm sources, resulted in a record $111.6 billion in farmers' total cash
income in 1988, or almost 7 percent more than the 1987 level. Figure 1.2
shows the increasing level of farmers' total cash income since 1980. (See
pp. 42- 45.)

Figure 1.2 Farmers' Total Cash Income, 1980- 88 129 Dollars In Bllllons

1989 Year

1981 1982 1983 1984 1985 1988 1987 1989 Source: USDA.

Most farmers had a low debt- to- asset ratio of 40 percent or less following
1988 operations; however, some were in financial difficulty with a high
debt- to- asset ratio of 71 percent or more. 3 Slightly over 1.5 million
farms, or 86 percent of all farms, had a

debt- to- asset ratio of 40 percent or less; they held about 49 percent of
the 1988 farm debt. On the other hand, 79,000 farms, or 4.5 percent of all
farms, had a debt- to- asset ratio of 71

3See the note in fig. 3.8 for an explanation of debt- to- asset ratio
categories.

14

percent or more: they held 19.5 percent of the 1988 farm debt. Figure 1.3
shows the number of farms in 1985 through 1988 by debt- to- asset ratio
category. (See pp. 50- 51.)

Fiqure 1.3 Number of Farms bv Debt- to- Asset Ratio. 1985- 88 Fams In
Thousands 1600

1400 1200 1000

800 800

490 200

0 0409L 41- 7% n- loox. Over 100% Debt- to- Asset Ratio

Note : 1987 and 1988 data are not directly comparable with the 1985 and 1986
data because ERS changed its methodology for compiling the 1987 and 1988
information.

Source: USDA. According to ERS, many farmers had favorable income and debt
levels in 1988 (positive net farm cash income and a debt- to- asset ratio of
40 percent or less); however, the majority had earnings

and/ or solvency problems (negative net farm cash income and/ or a debt- to-
asset ratio exceeding 40 percent). 4 For example, 811,000 farms, or 46
percent of all farms, were in a sound financial position with positive net
farm cash income and a debt- to- asset

4See the" note in fig. 3.9 for an explanation of income/ solvency position
categories,

15

ratio of 40 percent or less; they held 30 percent of the 1988 farm debt. On
the other hand, 833,000 farms, or 47 percent of all farms, were in a
marginal position with either (1) positive net farm cash income but a debt-
to- asset ratio exceeding 40 percent or (2) a debt- to- asset ratio of 40
percent or less but negative net farm cash income. These marginal farms held
about 48 percent of

the 1988 farm debt. In addition, 120,000 farms, or 6.8 percent of all farms,
were in a vulnerable position as viable business operations because they had
negative net farm cash income and a debt- to- asset ratio exceeding 40
percent; they held about 22 percent of the 1988 farm debt. Figure 1.4 shows
the number of

farms in 1985 through 1988 by income/ solvency position. (See pp. 52- 53.)

Fiqure 1.4 Number of Farms by Income/ Solvency Position. 1985- 88 999 Farme
In Thoueends 809

899 Favorable Matglnal

Solvency Income/ Solvency Poeitlon

Marginal income Vulnerable

1988 Note: 1987 and 1988 data are not directly comparable with the 1985 and
1986 data because ERS changed its methodology for compiling the 1987 and
1988 information.

Source: USDA. Y

16

Additionally, while national nonfarm employment continued to grow in 1988,
farm employment decreased by 1.2 percent compared with 1987, continuing an
overall declining trend that has been underway for many years. Also, the
Bureau of the Census reported

that the number of people living on farms decreased by slightly less than 1
percent in 1988 compared with the 1987 level. (See PP- 56- 57.) The total
number of agricultural businesses that failed in 1988, according to the Dun
& Bradstreet Corporation, decreased by about 52 percent compared with the
number that failed in 1987. Failures among crop production and livestock
production businesses decreased by a combined total of 60 percent in 1988
and more than offset an almost 14- percent increase in agricultural service
business failures. (See pp. 58- 59.)

THE FINANCE SECTOR: FARM LENDERS' FINANCIAL STRESS CONTINUED TO LESSEN IN
1988 Total outstanding farm debt was about $162 billion in 1988, or almost 6
percent less than the $171.5 billion in 1987 total farm debt. The decline in
1988 farm debt reflects the continued improvement in the farm sector and
farmers' overall decreased demand for new loans. Also, the 1988 decrease
continues a downward

trend that has been underway since 1982 when total farm debt peaked at $221
billion. Most of the 1988 debt-- over $131 billion-- was held by the
following institutional lenders: commercial banks, Federal Land Banks (FLBs)
and Production Credit Associations (PCAs) in the Farm Credit System (FCS),
the Farmers Home Administration (FmHA) and the Commodity Credit Corporation
(CCC) in USDA, and life insurance companies. The balance was held by
individuals, input suppliers, and others. Each of these lenders held less
debt in 1988 than in 1987, except for commercial banks and PCAs, whose
outstanding debt increased by 4 percent and 1 percent, respectively. Figure
1.5 shows the trend in total farm debt since 1980. (See pp. 62- 63.)

17

i - Fiaure 1.5 Total Outstanding Farm Debt, 1980- 88 230 Dollan in Billionr

170 160 150

1080 1981 1982 1083 1984 1985 1966 1987 1988 Yur

Source: GAO analysis of Farm Credit Administration (FCA), FCS, Board of
Governors of the Federal Reserve System (FRB), FmHA, CCC, American Council
of Life Insurance, and ERS data. The quality of the major institutional
lenders' farm loan . . .- - portfolios reflects conditions in the farm
sector. As the farm sector experienced continued improvement in its
financial condition in 1988, the lenders' portfolios also improved. For
example, the institutional lenders, excluding CCC, had $25 billion in farm
loans that were nonperforming and/ or delinquent at the end of 1988, or 24
percent of the total outstanding principal ($ 105 billion). This was a $4
billion, or almost 14- percent, decrease from 1987. Figure 1.6 shows the
trend in total nonperforming and/ or delinquent farm loans since 1984. (See
pp. 64- 65.)

18

Fisure 1.6 Total Non e for in c for Major Institutional Lenders. 1984- 88

32 26 24

1984 1965 1967 1983 YOOr

Source: GAO analysis of FCA, FCS, FRB, FmHA, and American Council of Life
Insurance data.

The overall quality of these lenders' portfolios continued to be skewed by
the poor condition of FmHA's portfolio. Excluding FmHA, the total
nonperforming and/ or delinquent loans held by the nonfederal lenders was
about $10 billion at the end of 1988, or 12 percent of their outstanding
debt, a decrease from the more than $13 billion, or 16 percent of their
outstanding debt, that was nonperforming and/ or delinquent in 1987. (See
pp. 64- 65.)

The improvement in lenders' portfolios was also reflected in a reduction in
farm loans written off as uncollectible by commercial banks, FLBs, and PCAs
in 1988, and in the amount of nonaccrual

loans at the end of 1988. These lenders wrote off about $413 million in
1988, or 67 percent less than the almost $1.3 billion they wrote off in
1987. In addition, as of December 31, 1988, these lenders had slightly over
$4 billion in nonaccrual loans -- the most severe category of nonperforming
loans, which may indicate future write- offs -- or 35 percent less than the

more than $6 billion they had at the end of 1987. (See pp. 66- 67.) Another
indication of the improvement in farm lenders' financial' condition was that
FCS experienced its first profit-- $704 million-- in 1988, after three
consecutive years of losses.

19

The 1988 improvement in earnings is due, in large part, to an increase in
net interest income and a substantial reduction in FCS' allowance for loan
losses. (See pp. 68- 69.) The gross value of farm real estate property held
by FLBs decreased in 1988, the second consecutive annual decrease. FLBs held
about $578 million in property acquired through foreclosure or deed in lieu
of foreclosure at the end of 1988, a 30- percent decrease compared with
1987. In addition, farm real estate

acquired by life insurance companies through foreclosure totaled $364
million in 1988, a 47- percent decrease compared with 1987. (See pp. 72-
75.)

Commercial banks that are heavily involved in agriculture experienced an
easing of financial stress in 1988. According to the Federal Deposit
Insurance Corporation (FDIC), 29 agricultural banks failed in 1988, or half
of the 58 that failed in 1987. In addition, 333 agricultural banks, from a
total of 1,406 banks, were

on the FDIC problem bank list, which classifies banks warranting more than
normal supervision, at the end of 1988. A year earlier, 513 agricultural
banks were on the FDIC problem bank list. Further, according to the FRB, 55
agricultural banks with above-

average farm loan ratios were highly vulnerable to failure at the end of
1988 because their nonperforming loans exceeded their capital. A year
earlier, 82 agricultural banks were identified by FRB as vulnerable. A
number of the banks that failed in 1988, or that were vulnerable to failure
at the end of 1988, were located in the central part of the country covering
Minnesota, Iowa, Nebraska, Kansas, Oklahoma, and Texas. (See pp. 76- 81.)

FmHA services the weakest farm customers of any lender, and the condition of
its portfolio continued to reflect its position as the federal lender of
last resort. Loan payments that were overdue to FmHA increased in 1988;
however, total outstanding principal on loans to delinquent borrowers
decreased. As of December 31, 1988, delinquent FmHA borrowers were overdue
on $9.7 billion in principal and interest payments, a l- percent increase
compared

with the $9.6 billion that was overdue a year earlier. Almost $8.3 billion,
or 86 percent, of the 1988 overdue amount was 3 years or more late and $9.2
billion, or 95 percent, was at least 1 year late. The total outstanding
principal on FmHA loans to delinquent borrowers was slightly over $15
billion at the end of 1988, an $800- million decrease from a year earlier.
(See pp. 82-

85.) 20

SECTION 2 THE ECONOMIC ENVIRONMENT: CONTINUED IMPROVEMENT

Y 21

Fisure 2.1 U. S. Production, Consumption, and Year- End Stocks for Key
Commodities, 1980- 88

Mstrlc Tons In Millions 1989 1981 1982 1983 1984 1985 1988 1987 1988 Market
Year

- Production - - - - Consumption m Year- End Stocks

Source: USDA. 22

WHILE PRODUCTION. CONSUMPTION, AND TOTAL YEAR- END STOCKS OF SOME KEY FARM
COMMODITIES DECREASED. FARM PRICES INCREASED

Total U. S. production, consumption, and year- end stocks of key farm
commodities decreased in 1988 compared with 1987. Production of coarse
grains-- including corn, the primary coarse grain-- and soybeans decreased
while wheat production increased. Consumption of soybeans and wheat
decreased while coarse grain consumption increased slightly. Year- end
stocks of these three key farm commodities all decreased by a combined total
of over 17 percent; however, prices for each of the three increased in 1988.

Table 2.1 U. S. Production, Consumntion, Year- End Stocks, and Market Prices
for Kev Commodities, 1987 and 1988

Production: All coarse grains Corn only Soybeans Wheat Consumption: All
coarse grains Corn only Soybeans Wheat Year- end stocks: All coarse grains
Corn only Soybeans Wheat Average market price: Corn Soybeans Wheat

Market yeara 1987b 1988 (metric tons in millions) 252.8 215.9 (14.6) 209.6
179.6 (14.3) 52.8 52.3 (O- 9) 56.9 57.4 0.9

181.8 182.8 150.0 151.6 34.9 34.2 32.5 29.7 152.3 134.1 (12.0) 124.0 108.2
(12.7) 11.9 8.2 (31.1)

49.6 34.3 (30.8) (c33l:; rs per b;; h; a)

4: 78 5: 88 2.42 2.57 Percent chanse

0.6 ii:!; .

29.3 23.0 6.2 aThe market year varies by crop. For example, it begins June 1
for wheat and September 1 for corn and soybeans. We use 1987 for USDA's
1986/ 87 market year and 1988 for the 1987/ 88 market year.

bUSDA- revised 1987 figures. In addition, USDA estimated in August 1989 that
U. S. producti! on, consumption, and year- end stocks for these key
commodities would generally decline in market years 1989 and 1990.

23

Fisure 2.2 Supply of Key Commoditv Stocks on Hand at Year- End, bv Number of
Months, 1980- 88 22 Numbar of Months 20 18 16 14 12 10

6 1980 1981 1982 1963 1984 1985 1988 1987 1988 Market Year

- Wheat I I I I Coarse Grains m Soybeans

Source: GAO analysis of USDA data. 24

STQCKS OF WHEAT. COARSE GRAINS, AND SOYBEANS ON HAND DECREASED The stocks of
wheat, coarse grains, and soybeans on hand at the end of the 1988 marketing
year, on the basis of U. S. monthly average consumption rates, decreased
compared with the 1987 marketing year. For example, according to USDA, at
the end of 1988, 34 million metric tons of wheat were in U. S. stock. During
1988, U. S. wheat consumption averaged 2.5 million metric tons each month.
On the basis of that consumption rate, about 14 months of wheat supply were
in stock at year- end. Previously, at the end of

1987, about 50 million metric tons of wheat were in stock and the average
monthly consumption rate was 2.7 million metric tons. As a result, 18 months
of wheat supply were in stock at the end of 1987. Similarly, the supply of
soybean stocks decreased from 4 months to almost 3 months, and the supply of
coarse grain stocks decreased from 10 months to almost 9 months.

Table 2.2 Smplv of Kev Commoditv Stocks on Hand at Year- End, bv Number of
Months, 1987 and 1988 Commodity Market year Percent

1987 1988 change (number of months) Wheat 18.4 13.7 (25.5) Coarse grains
10.1 8.8 (12.9) Soybeans 4.1 2.9 (29.3)

The stock of coarse grains on hand at the end of the 1988 marketing year
continued to exceed the level that existed at the end of the 1983 marketing
year, which was followed by USDA's 1983/ 84 payment- in- kind program. There
were almost 9 months of coarse grain stocks on hand at the end of 1988
compared with 7 months at the end of 1983.

However, on the basis of USDA's August 1989 estimates, the stocks of wheat
and coarse grains at the end of the 1989 and 1990 marketing years are
estimated to decline considerably from the levels at the end of 1988 because
of production declines. For example, wheat and coarse grain stocks are
estimated at 6 months and 4 months, respectively, at the end of the 1990
marketing year. Soybean stocks, on the other hand, are estimated at 2.9
months at the end of the 1990 marketing year, the same as the level at the
end of 1988.

25

Fisure 2.3 U. S. Asricultural Exports, 1980- 88 46 DollsIs In Billions

20 1900 Year

1981 1992 1993 1994 1995 1986 1967 1960 Source: USDA.

26

U. S, AGRICUT, TURAL EXPORTS INCREASED Total U. S. agricultural exports
increased to $37 billion in 1988, a 29- percent increase over 1987, In
addition, total export volume rose to 148.5 million metric tons, an 11.5-
percent increase compared with 1987. Most of the more than 15- million
metric ton increase in U. S. agricultural exports involved coarse grains and
wheat, which increased 6 million and almost 10 million metric tons,
respectively, more than offsetting a 2.8- million metric ton decrease in
soybeans and soybean products. According to USDA,

increased demand for U. S. agricultural products resulted from a variety of
factors including relatively strong world economic growth, decreased
supplies from some competitor countries because of the effect of adverse
weather on production, and lower prices for U. S. products because of a
continued decline in the value of the dollar. In addition, federal export
programs contributed to the increase in exports. For example, according to
USDA,

54 percent of all 1988 U. S. wheat exports, or 22 million metric tons, can
be attributed to the Export Enhancement Program. Among key U. S.
agricultural export commodities, coarse grains experienced a 55- percent
increase in value and almost a 130percent increase in volume in 1988
compared with 1987. Wheat exports increased 59 percent in value and almost
31 percent in volume. Soybeans and soybean products, on the other hand, had
about a 17- percent increase in value but a lo- percent decrease in volume.

Table 2.3 U. S. Aoricultural Fxnort Statistics, 1987 and 1988 U. S. extmrts

Value of exports Percent 1987a 1988 chance --( billions)-- Volume of exports
percent

1987a change 1988 (metric tons in millions) Total $28.7 $37.1 29.3 133.2
148.5 11.5 Key export crops: coarse grainsb 3.8 5.9 55.3 48.8 55.0 12.7

Saybeans~ mp Products 5.9 3.2 5.1 6.9 59.4 16.9 28.1 31.9 25.3 41.7 (10.0)
30.7 aUSDA- revised 1987 figures. bIncludes corn, barley, oats, rye, and
sorghum.

U. S. agricultural imports increased in 1988 to $21 billion, a 3- percent
increase over 1987. As a result, the U. S. agricultural trade surplus
increased to $16.1 billion, a 94- percent increase compared with 1987, and
the second consecutive annual increase.

27

Ficrure 2.4 . s Share of World Market for Key Commodities, 1980- 88 70
Psrcsnt SO SO 30 30 20 20 10 10

1990 1991 1992 1993 1994 1995 1999 1967 1999 Market Ysar

- Coarse Grains - -I - Soybeans D Wheat

Source: GAO analysis of USDA data. 28

U. S, MARKET SHARE FOR KEY FARM COMMODITIES INCREASED The U. S. share of the
world market, on a volume basis, for three of the most heavily traded
commodities-- coarse grains, wheat, and soybeans and soybean products (meal
and oil)-- increased in 1988 compared with 1987. This was the second
consecutive increase for coarse grains and for wheat. The market share for
coarse

grains rose to over 54 percent in 1988 from about 48 percent in 1987. The
market share for wheat showed a substantial increase to about 38 percent in
1988 from about 27 percent in 1987. In addition, soybeans and soybean
products, which had previously decreased in 1987 from 1986, increased by 2
percent in 1988. The market share for soybeans and soybean products
increased to almost 49 percent in 1988 as a result of decreases in exports
of these products by other countries.

Table 2.4 U. S. Market Share of Total World Trade for Three Key Commodities,
1987 and 1988 Commodity Market year 1987 1988 ---( percent)----

Percent chancre Coarse grains 47.7 54.4 14.0 Wheat 26.8 37.5 39.9 Soybeans
and soybean products 47.9 48.9 2.1

However, on the basis of USDA's August 1989 estimates, the U. S. market
share for two of these key commodities (wheat and soybeans and soybean
products) is estimated to decrease in market year 1989 while the share for
coarse grains is estimated to increase in 1989. Wheat was estimated to reach
about 36 percent, and soybeans and soybean products were estimated to reach
slightly over 38 percent in market year 1989, as a result of USDA- projected
decreases in U. S. exports. Coarse grains, on the other hand, were estimated
to reach slightly over 58 percent in market year 1989 as a result of USDA-
projected increases in U. S. exports.

29

yearly Averacre Index Value of the U. S. Dollar. 1980- 88 199 Index Vrlur
140 140 199 199 129 129 110 110 100 100

90 90 90 90

1989 Year 1989

Year 1961 1952 1983 1954 1955 lgse 1957 1955

Note: The index is based on a March 1973 value that equals 100. Source:
Economic Report of the President transmitted to the Congress in January 1989
and Board of Governors of the Federal Reserve System.

30

TRADE- WEIGHTED VALUE OF THE U. S. DOLLAR DECLINED The yearly average
multilateral trade- weighted value of the U. S. dollar declined in 1988, the
third consecutive annual decline. 1 Compared with a 1973 base index of 100,
the yearly average index of the dollar's nominal value measured almost 93
for 1988, a 4- percent decline from the previous year's index value. On the
basis of this index, the dollar's value has fallen by more than 17 percent
in the past 2 years.

Table 2.5 Yearlv Averaae Multilateral Trade- Weiahted Index Value of the U.
S. Dollar, 1987 and 1988

Value 1987 1988 Percent chanae Nominal 96.9 92.7 (4.3) Real 90.6 88.0 (2.9)
Note: The index is based on a March 1973 value that equals 100.

The dollar's decline in 1988 continued to be primarily in relation to
heavily traded industrialized countries' currencies, such as the Japanese
yen. According to USDA, increased demand as a result of the lower value of
the dollar was one of the reasons U. S. agricultural exports to developed
countries increased in value by 17.9 percent in 1988 compared with 1987.

Two of the leading foreign markets for U. S. agricultural exports in 1988
were Japan and Canada. Exports to Japan and Canada increased by 33.5 percent
and 11.7 percent, respectively, as the dollar declined by 11 percent against
the yen and 7 percent against the Canadian dollar.

In addition, subsidies offered under federal export programs made U. S.
products more competitive in developing countries, contributing to an almost
33- percent increase in 1988 exports to such countries.

lThe multilateral trade- weighted value of the dollar is a composite index
showing the appreciation or depreciation of the dollar as measured* against
a number of major currencies, weighted by the respective countries' trade
volume with the United States. 31

Fiqure 2.6 Federal Aqricultural Outlays, Fiscal Years 1980- 88

32 32 Dollam in Bllllono Dollam In Bllllono 26 26 24 24 20 20 16 16 12 12

6 6 4 4

0 0 1966 1961 1962 1963 1964 1965 1966 1967 1966 Fiscal Year 1966 1961 1962
1963 1964 1965 1966 1967 1966

Fiscal Year Source: Economic Report of the President transmitted to the
Congress in January 1989.

32

FEDERAL OUTLAYS FOR AGRICULTURE DECREASED According to the 1989 Economic
Report of the President, federal agricultural outlays decreased to $17
billion in fiscal year 1988, a 35- percent decrease from the previous year.
Federal

agricultural outlays totaled $173 billion from 1980 through 1988. Table 2.6
Federal Asricultural and Total Outlavs. 1987 and 1988

Outlavs Fiscal vear 1987a 1988 ---( billions)--- Percent chanse

Agricultural $ 26.6 $ 17.2 (35.3) Total federal 1,003.8 1,064. O 6.0
Agricultural as a percentage of total 2.6 1.6 (38.5)

aThe 1989 Economic Report of the President revised 1987 figures. Commodity
price support programs accounted for $12.5 billion of the fiscal year 1988
federal agricultural outlays; other farm income stabilization programs, such
as FmHA loans and Federal Crop Insurance Corporation payments, accounted for
$2.7 billion; and agricultural research and services accounted for $2.0
billion. Most of the commodity price support outlays applied to three CCC
programs: nonrecourse commodity loans (net cash outlays of $4.6 billion),
direct cash deficiency payments ($ 4.0 billion), and storage of farm
commodities and related activities ($ 1.8 billion). Other CCC price support
programs included the dairy termination program and export subsidy programs.
In addition to direct

outlays, farmers received other benefits by participating in federal
programs, such as interest subsidies with CCC nonrecourse commodity loans
and FmHA direct loans. The President's January 1989 economic report also
projected that fiscal year 1989 federal agricultural outlays will increase
to $21 billion and then decrease to almost $16 billion in fiscal year 1990.
Commodity price support programs are projected to account for approximately
70 percent of the total federal agricultural outlays in each year.

33

SECTION 3 THE FARM SECTOR: FINANCIAL POSITION CONTINUED TO IMPROVE

Y 35

Fisure 3.1 Averaqe Per- Acre Value of Farmland, 1980- 89 860 Dollar0 600 760
700 660

1980 19Bl 1982 1983 1984 1985 1986 1987 1988 1989 Yaar

Note: Values as of February 1, 1980 and 1981: April 1 for 1982 through 1985;
and February 1 for 1986 through 1989.

Source: USDA. 36

ERS reported that the national average value of farmland increased from $564
per acre on February 1, 1988, to $597 per acre on February 1, 1989. This
5.9- percent increase was the second consecutive yearly increase after 5
years of declining values.

ERS also reported that total farm assets increased by 6.1 percent in 1988
compared with 1987; this was the second consecutive annual increase. The
increase in total farm assets was primarily due to the increase in farm real
estate values. Farm real estate is the primary farm asset, accounting for
about 73 percent of total farm assets in 1988.

Of the 48 contiguous states, 42 had increases in farmland values in February
1989 compared with February 1988. States in all farm production regions,
except the Southwest Plains, experienced increases in values with the
Northeast experiencing the largest gain of over 13 percent. Pennsylvania led
all states with a 21- percent increase and 11 other states had increases of
9 percent or greater. Three states-- Colorado, Oregon, and Utah-- had no
change

in farmland values. On the other hand, 3 states continued to experience
decreases in farmland values-- Texas (5 percent), Wyoming (3 percent), and
Arizona (1 percent). Table 3.1 ,Averaae Per- Acre Farmland Values in States
with the Greatest Increases, February 1, 1988, to February 1. 1989

State Highest percent increases:

Pennsylvania $1,819 $2,201 New Jersey 6,189 7,241 Delaware 1,895 2,217 Iowa
890 1,041

Nebraska 366 421 Virginia 1,143 1,292 Maryland 2,014 2,216 Illinois 1,114
1,225 South Dakota 187 204 South Carolina 874 953 Oklahoma 421 459 Georgia
865 943 National average for the 48 contiguous states

Per- acre value Percent February 1988 February 1989 chanae

$ 564 $ 597 21.0 17.0 17.0 17.0 15.0 13.0 10.0 10.0 9.1 9.0 9.0 9.0

5.9 37

Fisure 3.2 pates of Return on Assets and on Eauitv, 1980- 88

8 Poffiont 8 Poffiont 8 8 4 4

- Assets -1- 1 Equity

Source: USDA. Y

38

TES OF RETURN ON ASSETS AND QN EQUITY CONTINUED POSITIVE Farmers' total
rates of return on assets and on equity improved in 1988 compared with 1987.
According to ERS data, farmers' total rates of return on assets and on
equity in 1988 remained positive for the second consecutive year. The
positive rates of return on assets and on equity resulted from high income
returns along with positive capital gains returns.

Table 3.2 Rates of Return on Assets and on Eauitv. 1987 and 1988 Return on
assets: IncomeC Capital gains

Total Return on equity: Incorned 4.2 3.5 Capital gains 1.2 4.4

Total 1987a 1988b

----( percent)--- 5.4 4.9 0.0 2.8

u u aERS- revised 1987 percentages. bTotals do not add because of rounding.
CExcludes returns imputed to operator's labor and management. dExcludes
returns imputed to operator's labor and management and interest on debt.

ERS projected in August 1989 that farmers' total rates of return on assets
and equity would continue to be positive in 1989. The total return on both
assets and equity was projected to be in the 6- percent range.

39

Fiaure 3.3 Gross and Net Farm Income and Production Costs. 1980- 88 1960
1981 1982 1983 1984 1985 1986 1987 1988 YSSr

- Gross Income -1- 1 Production Costa m Net Income

Source: USDA. Y

40

PHILE FAJQfERS' GROSS FARM INCOME INCREASED. # Fanners' gross farm income,
excluding off- farm income and after adjusting for changes in the value of
inventory, increased by 3.5 percent in 1988 from the 1987 level, the second
consecutive annual increase. 3 percent. l However, net farm income decreased
by

According to ERS statistics, the 1988 increase in gross farm income is
primarily attributable to about a B- percent increase in gross farm cash
income, which occurred mainly as a result of increases in livestock and crop
cash receipts, and a 3- percent increase in nonmoney income, such as the
value of home consumption of farm products. These increases offset decreases
in government payments, farm- related income, and inventory values.

ERS also reported that total production expenses increased by 6 percent in
1988. The large increase in production expenses ($ 7.5 billion) more than
offset the smaller increase in gross farm income ($ 6 billion), resulting in
the 1988 net farm income decline.

Table 3.3 Farmers' Gross and Net Farm Income and Total Production Exnenses,
1987 and 1988 1987a 1988 ---( billions)---

Percent chanse Gross farm cash income $162.0 $171.6 5.9 Nonmoney income 10.0
10.3 3.0 Value of inventory change (0.4) (4.3) (975.0)

Gross farm income 171.6 177.6 3.5 Total production expenses 124.5 132.0 6.0

Net farm income $47,1 aERS- revised 1987 values. bTotal does not add because
of rounding.

I- Gross and net farm income measure the value of farm production during a
year. Gross farm income includes the receipts from the sale of farm
products, government payments, farm- related income, nonmoney income, and
the value of inventory changes. Net farm income is gross income less total
production expenses. Included are the' income, except off- farm income, and
expenses associated with operators' households.

41

Ficrure 3.4 Gross and Net Farm Cash Income and Cash ExDenses, 1980- 88 160
DollarsIn BIllIons

1980 1991 1992 1993 1994 198 1996 1987 1966 VOW

- Gross Cash Income - - - - Cash Expenses w Net Cash Income

Source: USDA. Y

42 M

FARMERS' GROSS AND NET FARM CASH INCOME INCREASED Farmers' gross and net
farm cash income increased by almost 6 percent and 4 percent, respectively,
in 1988 from the 1987 level.* According to ERS statistics, the 1988 increase
in gross

farm cash income is attributable to an almost 14- percent increase in crop
cash receipts and a 4- percent increase in livestock cash receipts. These
increases more than offset a 13- percent decrease in direct government
payments and an almost 2- percent decrease in farm- related income, such as
custom work and machine hire. ERS also reported that farm cash expenses
increased in 1988 by over 7 percent and that farmers' net farm cash income
was a record high $59.9 billion, or a 3.8- percent increase compared with
1987.

Table 3.4 Farmers' Gross and Net Farm Cash Income and Cash Expenses, 1987
and 1988 Percent 1987a 1988 change ---( billions)---

Crop cash receiptsb Livestock cash receipts Government payments Farm-
related income Gross farm cash income Farm cash expenses

Net farm cash income Net farm cash income margin (percent)

$ 63.8 $ 72.6 13.8 75.7 78.9 16.7 14.5 (1X)

5.8 5.7 (1.7) 162.0 171.6c 5.9

$57,7 35.6 34.9 (2.0) aERS- revised 1987 values. bIncludes net CCC loans.
CTotal does not add due to rounding.

*Gross and net farm cash income measure farm cash earnings regardless of
when the commodities were produced. Gross farm cash income includes cash
receipts from the sale of all farm products, government payments, and farm-
related income. Net farm cash income is gros& farm cash income less farm
cash expenses. Excluded are the income and expenses associated with farm
operators' households.

43 I, , ”

ers1 Off- Fa Figure 3.5 Net Farm Cash, and Total Cash Income, 1980- 88 120
Wknln Bllllona 100 60 60 40 20

0 1969 1981 1992 1983 1994 1996 1999 1997 lW8 VOW

- TotalCash -- mm Off- Farm - Net Farm Cash

Source: USDA. 44

FARMERS' OFF- FARM INCOME CONTINUED TO INCREASE Farmers' off- farm cash
income3 increased in 1988 to a record high of almost $52 billion, a 10.5-
percent increase compared with 1987, and continued an increasing trend.
According to ERS statistics, most off- farm income -- approximately 80
percent in recent years -- was received by noncommercial farms with annual
sales of less than $40,000. In addition, about 10 percent of the

off- farm income was received by farms with annual sales in the $40,000 to
$99,999 range. Off- farm income provides these farmers with a buffer against
the financial risks of farming.

Farmers' net farm cash income, which totaled almost $60 billion, combined
with the high level of off- farm cash income resulted in an increase in
farmers' total cash income4 in 1988 to a record high level of almost $112
billion. This high level of total cash income improves the liquidity of the
farm sector and contributes to its ability to service debt.

Table 3.5 Farmers' Off- Farm, Net Farm Cash, and Total Cash Income, 1987 and
1988 Off- farm income Net farm cash income Total cash income of farm
operators

aERS- revised 1987 values. 1987a 1988 ---( billions)---

Percent chanse $46.8 $ 51.7 10.5

57.7 59.9 3.8 $104,5 $111.6 6.8

30ff- farm income includes all cash income received by farm operators and
members of their households from nonfarm employment, such as nonfarm wages
and salaries and nonfarm business and professional income. *Total farm cash
income is a measure that combines net farm cash income and off- farm income,
an all- cash measure.

45

Fisure 3.6 Farm Real Estate, Non- Real Estate, and Total Interest Expenses,
1980- 88

Dollan in Bllllonr 22

20 16

16 14

1980 1981 1982 1983 1984 1985 1986 1987 1988 YBCir

m Total -1- 1 Real E5tate B Non- Real Estate

source: USDA. 46

FARMERS' TOTAL PRODUCTION EXPENSES INCREASED, BUT INTEREST PAYMENTS
DECREASED Total farm production expenses increased by about 6 percent in
1988 compared with 1987. However, farmers' interest payments decreased by
$300 million, or almost 2 percent, continuing a declining trend that has
been underway since 1983. All other major farm production expense categories
increased by percentages ranging from almost 2 percent to 16 percent in 1988
compared with 1987. For example, manufactured inputs increased by 7 percent
to $18

billion and farm- origin inputs increased by 16 percent to almost $37
billion. With lower interest rates and a substantial reduction in the amount
of debt outstanding, ERS reported 1988 interest payments at $15.2 billion.
Real estate interest expenses were $7.9 billion, or $300 million less than
1987. Non- real estate interest expenses

were $7.3 billion, or about $18 million less than 1987. However, the $300-
million decline in interest expenses was substantially offset by the $7.8-
billion increase in expenses in the four other production expense
categories.

Table 3.6 Farm Production Expenses, 1987 and 1988

Farm production expense category 1987 1988 ---( billions)--- Percent change

Farm- origin inpUtSa Manufactured inputsb Interest payments Other operating
expensesC

Overhead expensesd $31.8 $36.9 16.0

17.0 18.2 15.5 15.2 (2, ') 31.5 32.3 2.5 28.8 29.3 1.7

Totale $124.5 $132.0 6.0 aIncludes feed, livestock, and seed. bIncludes
fertilizer, fuel, and pesticides. CIncludes repair and operation, hired
labor, and machine hire. dIncludes depreciation, taxes, and rent. eTotals do
not add due to rounding.

Y 47

Fiaure 3.7 Indexes of Prices Received and PAid bv Farmers, 1980- 88 170
Index Valur 165 180 155 150 145 140 135 120 129

170 Index Valur 185 180 155 150 145 140 135 120 129 129 129

1980 1961 Year 1980

Year 1961 1992 1983 1984 1985 1986 1987 1'988

- Paid for All Items -- I - Paid for Production Items m Received

Note: The index is based on a 1977 value that equals 100. Source: Economic
Report of the President transmitted to the Congress in January 1989.

48

ES OF PRICES RECEIVED AND ID BY FARMERS INCREASED The index of prices
received by farmers in 1988 for their products continued to be less than the
index of prices they paid. The spread between the indexes, however,
continued to narrow in 1988. The last year that the index of prices received
by farmers for their products exceeded the index of prices they paid was
1979.

Using 1977 as a base- year index value of 100, the index of prices received
by farmers in 1988 for all farm products measured 1380- almost a g- percent
increase from 1987. The 1988 index of prices paid by farmers for production
items, such as fertilizer and fuel, measured 157 -- almost a 7- percent
increase from 1987. The 1988 index of prices paid by farmers for all
commodities, services, interest, taxes, and wages measured 1700- almost a 5-
percent increase from 1987.

Table 3 7 . Indexes of Prices Received and Paid bv Farmers, 1987 and 1988

Index item 1988 Percent chanse Prices received 127 138 8.7 Prices paid:
Production itemsa 147 157 6.8

All itemsb 162 170 4.9 Prices received as a percentage of prices paid for
production itemsa 86.4 87.9

all itemsb 78.4 81.2 1.7 3.6

Note: The index is based on a 1977 value that equals 100. aIncludes
equipment, fertilizer, and fuel. bIncludes commodities, services, interest,
taxes, and wages, including items used for family living.

During the early part of 1989, the index values of prices farmers received
and paid continued to increase. ERS reported that the index of prices
received increased to 147 in April 1989 (a 13- percent increase compared
with the April 1988 index of 130). However, the indexes of prices paid for
production items increased to 165 and for all items to 177 in April 1989
(6.5. percent and 5.4- percent increases compared with April 1988 index
values of 155 and 168, respectively).

49

Fisure 3.8 Percent of Total Farm Debt bv Debt- to- Asset Ratio, 1985- 88

55 Peroent 50 45 40 36 30 25 20 15 10

5 0

Over 100% Debt- lodeet Ratio

Note: The debt- to- asset ratio compares the value of assets to the amount
of debt and is one indicator of financial soundness. Farms with ratios of 40
percent or less are in the best position to withstand financial adversity.
They can likely offset negative cash flows from farming operations by
borrowing against or selling assets. Farms in the 41- to 70- percent
category may be able to borrow to offset negative cash flows and meet all
expenses. Farms in the 71- to loo- percent category are less likely to be
able to offset negative cash flows through borrowing. Farms with a ratio

over 100 percent have severe problems meeting principal and interest
commitments and have a negative net worth. Farms in this category are
technically insolvent and the sale of farm assets would be insufficient to
retire their debts.

The 1987 and 1988 data are not directly comparable with the 1985 and 1986
data because ERS changed its methodology for compiling the 1987 and A. 988
information. Source: USDA.

50

MOST FARMERS CONTINUED TO HAVE A FAVORABLE DEBT- TO- ASSET RATIO More than
86 percent of all farmers had a debt- to- asset ratio of 40 percent or less
following 1988 operations; they held about 49 percent of the 1988 farm debt.
Another 9 percent of all farmers were classified by ERS as having some debt
repayment problems but an adequate net worth, with a debt- to- asset ratio
of 41 through 70 percent: they held about 32 percent of the farm debt.
However, 4.5 percent of all farmers were in financial difficulty with a
debt- to- asset ratio of 71 percent or more: they held 19.5 percent of the
1988 farm debt.

Table 3.8 NumberofFarmstiAmou. ntofFarmDebt. by D& t- to- Asset Ratio, 1987
and 1988 Debt- to- asset ratio &f@% 41- 70% 71- 100% over 100% Totala
Numberoffarms ( f= jJ-) ---- 1987 1,422 167 th"" d")---; 50
;----;

1988 1,524 162 51 28 1; 764 Rercentoffarms 1987 85.0 10.0 3.0 2.0 100.0 1988
86.4 9.2 2.9 1.6 100.0

Artmunt of debtb 1987 1988 $39.9 ------ l-----------( bi~~~~)-----$ 9-
8----$ 88- 4 $27.8 . 41.6 26.9 9.8 6: 8 85: l Percentofdebt 1987 1988 45.1
31.4 12.4 11.1 100.0 48.9 31.6 11.5 8.0 100.0 Average ratio 1987

1988 ------------ ----- 7.8 ;;-;---(~~)- 1- 144-; . . ;;-;

6.7 52.0 80.0 155: o 13: 4 aTotals may not add because of rounding.
bERsgathers farmdebtinfonnationthroughUSIN's annual FarmCosts andReturns
Survey. The 1987 survey showed 1987 farm debt of $88.4 billion; the 1988
survey showed 1988 farm debt of $85.1 billion. These figures differ fram the

$172 billion and $162 billion we report in table 4.1 for 1987 and 1988,
respectively, because they are based on survey responses, only include farm
operatorsf debt related to farming operations, and exclude operators' debt
held for nonfarm purposes, farm debt held by individuals other than farm
operators, Ccc cammodity loans, and same small- scale farmers. Ourhigher
figures are based on information reported by institutional lenders to the
farm sector and ERS' estimate of the farmdebtheldbyotherlenders.

51

Figure 3.9 Percent of Total Farm Debt by Income/ Solvency Position, 1985- 88

60 Porwnt 45 40 35

Favorable Marglnal Solvoney Marglnaf

lnoome Vulnerable Note : Favorable farms have positive net farm cash income
and favorable solvency -- debt- to- asset ratio of 40 percent or less. These
farms are in stable financial position. Marsinal solvency farms have
positive net farm cash income but high leverage-- a debt- to- asset ratio
over 40 percent. These farms, without current

earnings problems, have high debt service requirements that could lead to
future earnings problems. Marqinal income farms have favorable solvency -- a
debt- to- asset ratio of 40 percent or less-- but negative net farm cash
income. These farms, without short- term debt problems, have current
earnings problems that could lead to future solvency problems. Vulnerable
farms have high leverage-- a debt- to- asset ratio exceeding 40 percent --
and negative net farm cash income. These farms, with high debt service
requirements and earnings problems, are vulnerable as viable business
operations.

The 1987 and 1988 data are not directly comparable with the 1985 and 1986
data because ERS changed its methodology for compiling the 1987 and 1988
information. Source: USDA. 52

Y FARMS HAD A FAVORABLE INCOME AND DEBT LEVEL. B? JT MOST WERE IN A MARGINAL
OR VULNERABLE POSITION According to ERS, 811,000 farms, or 46 percent of all
famS, in 1988 were in a sound financial position in terms of combined net
farm cash income and debt- to- asset ratio. These sound farms held

30.4 percent of the 1988 farm debt; an increase from the 29.7 percent of the
1987 farm debt held by sound farms. However, the majority of farms continued
to be in a marginal or vulnerable position. For example, 6.8 percent of all
farms had positive net farm cash income but a high debt- to- asset ratio,
and another 40.4 percent had a low debt- to- asset ratio but negative net
farm cash income. In addition, 120,000 farms, or 6.8 percent of all farms,

had both negative net farm cash income and a high debt- to- asset ratio, a
combination that makes them vulnerable as viable business operations. Table
3.9 Nunber of Farms and Amount of Farm Debt, by Net Farm Cash Incame and
Solvency Position, 1987 and 1988

IWmberoffarms 1987 1988 F+ Jzcentoffarms 1987 1988 Amount of debtb 1987 1988
Rzcentofdebt 1987 1988 Average debt- to- asset ratio 1987 1988

Farm income and solvencv position Marginal Marginal Vulnerable 811 136 611
113 1,672 811 120 713 120 1,764 48.5 8.2 36.6 6.8 100.0 46.0 6.8 40.4 6.8
100.0 ( billions)

$26.2 $31.1 $13.7 $17.4 $88.4 25.9 25.0 15.8 18.4 85.1 29.7 35.1 15.5 19.7
100.0 30.4 29.4 18.6 21.6 100.0

( percent) 7.9 64.7 7.7 65.8
15.1 7.5 63.6 7.1 64.8 13.4

aTotals may not add because of rounding. bsee note b in table 3.8 for an
explanation of the difference in total debt listed here and in table 4.1.

53

Fisure 3.10 Percent of Total Farm Debt bv Farm Sales Class, 1985- 88

32 Psrcsnt 28 24 20 16 12

8 4 0

Saks Class (thousands) Note: 1987 and 1988 data are not directly comparable
with the 1985 and 1986 data because ERS changed its methodology for
compiling the 1987 and 1988 information. Source: USDA.

54

POST FARM DEBT WAS HELD BY COMMERCIAL FARMS According to ERS, commercial
farms' share of total farm debt decreased in 1988 while noncommercial farms'
share increased. Most 1988 farm debt, however, continued to be held by
commercial farms, those having $40,000 or more in sales. In 1988, commercial
farms accounted for 31.7 percent of all farms and 76.6 percent of the farm
debt. In 1987, commercial farms accounted for 32.8 percent of

all farms and 77.5 percent of the debt. The greatest share of 1988 farm
debt, 26.3 percent, continued to be held by mid- size commercial farms --
sales of $100,000 to $249,000. The largest farms -- sales of $500,000 or
more-- accounted for 2 percent of all farms and 18.6 percent of total farm
debt. The smallest farms-- sales of less than $40,000-- accounted for 68.3

percent of all farms and 23.4 percent of the debt. Table 3.10 Number of
Farms and Amount of Farm Debt, bv Farm Sales Class, 1987 and 1988

Sales class (thousands) $0 to $40 to $100 to $250 to $500 and 499
Numberoffarms 1987 1,123 255 199 67 28 1,672 1988 1,205 248 206 70 35 1,764

R? rcentoffarms 1987 67.2 15.2 11.9 4.0 1.7 100.0 1988 68.3 14.1 11.7 4.0
2.0 100.0 ?umunt of debtb 

1987 $19.9 $16.3 (billio~)~ 884 $23.5 $14.9 $13.9 . 1988
19.9 14.1 22.4 12.9 15.8 85.1

F'ercentofdebt 1987 1988 22.5 18.4 26.6 16.9 15.7 100.0 23.4 16.6 26.3 15.2
18.6 100.0 Average debt- to- asset ratio ---- 

8.1 16.8 20( yc&) . ------ ---- 1987 22.4 --;;-;-----;;-; . 1988 7.7 14.6
18.2 17.5 19: 9 13.4

aTotdLsmaynotaddbecause of rounding. bsee note b in table 3.8 for an
explanation of the difference in total debt listed here and in table 4.1.

J 55

, 9.50 Pooplo in Mllllonr 3.46 9.40 a. 36 3.30 3.26 3.20 3.15 3.10 3.06 3.00

1900 Ysar

1061 1982 1983 1984 1985 1986 1987 1988 Source: Economic Roort of the
President transmitted to the Congress in January 1989 and Department of
Labor's Bureau of Labor Statistics.

56

RM EMPLOYMENT DECREASED According to the Department of Labor's Bureau of
Labor Statistics, farm employment decreased by 1.2 percent in 1988 compared
with 1987, continuing an overall declining trend that has

been underway for many years. For example, farm employment has decreased
each year since 1982, except for 1987. Nonfarm employment, however,
increased by 2.4 percent in 1988. Farm employment decreased to 3.1 million
people and comprised 2.8 percent of the civilian labor force during 1988.

Table 3.11 Aaricultural and Total Employment. 1987 and 1988 1987 1988
(people in thousands) Farm employment Nonfarm employment

Total Farm employment as a percent of total employment

3,208 3,169 109,232 111,800 112.440 114.969

2.9 2.8 Percent change

(1.2) 2.4 2.2

(3.4) In addition, according to the Department of CommerceIs Bureau of the
Census, the U. S. rural farm population decreased slightly in 1988 from the
1987 level. Almost 5 million people lived on rural

farms in 1988, a less than l- percent decline from the 1987 level. States in
the central and northcentral parts of the country accounted for slightly
over 50 percent of the total U. S. farm population. On the other hand,
states in the northeastern part accounted for only 5 percent of the farm
population.

57

Ficmre 3.12 Asricullxral Business Failures. 1984- 88

Numbor of Business Failures 2800

2400 2ooo 1600 1200

- Crop Production --- - Livestock Production - %NiC8S

Note: 1987 and 1988 data are not directly comparable with 1984- 86 data
because firms were able to file for bankruptcy in 1987 and 1988 under a
provision of the bankruptcy code that was not available in 1984 through
1986. Source: The Dun SI Bradstreet Corporation.

58

According to preliminary information reported by the Dun & Bradstreet
corporation, slightly more than 1,800 agricultural businesses failed in
1988, with 1987 failures. 5 about a 52- percent decrease compared Failures
decreased in 1988, compared with the previous year, among firms that had
been engaged in crop production and livestock production: however, failures
increased among firms engaged in agricultural services. Crop production
firms continued to account for most of the agricultural business failures,
about 54 percent in 1988 and 73 percent in 1987. In addition, Dun &

Bradstreet reported that total business failures recorded the largest
decline in a decade in 1988, decreasing by about 7 percent from 1987 levels.

Table 3.12 Number of Aqricultural Businesses That Failed, 1987 and 1988

Agricultural business 1987a Percent 1988b change Crop production 2,716 971
(64.2) Livestock production

Total 592 339 (42.7)

3,308 1,310 (60.4) Agricultural services

Total 433 492 13.6

3.741 1,802 (51.8) aDun & Bradstreet- revised 1987 statistics. bThe 1988
data were reported as preliminary.

Also, the average value of liabilities owed by agricultural businesses that
failed in 1988 decreased to about $297,000, or by more than 18 percent, from
the $364,000 average owed by the 1987 failed agricultural businesses. Total
liabilities of failed agricultural firms in 1988 were $535 million, a Bl-
percent decrease from the 1987 level of $1.4 billion. 5Dun t Bradstreet
Corporation produces and markets business information and related services.
Its business failure statistics include businesses that ceased operations
following assignment or bankruptcy, or after such actions as foreclosure or
attachment: voluntarily withdrew leaving unpaid obligations; were involved
in court actions such as receivership, reorganization, or arrangement: or
voluntarily compromised with creditors.

59

SECTION 4 THE FINANCE SECTOR: FARM LENDERS' FINANCIAL STRESS CONTINUED TO
LESSEN

61

Fisure 4.1 Percent of Total Farm Debt Held by Lenders, 1986- 88 32 Pwcmn

24 16

6 Lander Source: GAO analysis of FCA and FCS data for FLBs and PCAs, FRB
data for commercial banks, ERS data for individuals and others, FmHA data,
American Council of Life Insurance data for life insurance companies, and
CCC data.

62

9 DE: SOME T, ENDERS' FARM DEBT INCREASED Total outstanding farm debt
declined to about $162 billion at the end of 1988, a 5.8- percent decrease
compared with 1987; it has declined by almost $59 billion since the 1982
peak of $220.5 billion. Most of the outstanding farm loans, over $131
billion, continued to be held by several major institutional lenders,
although ERS has estimated that 1988 farm debt held by other lenders, such
as individuals, totaled over $30 billion.

The outstanding farm debt held by all lenders, except commercial banks and
PCAs, declined in 1988 compared with 1987. Outstanding debt held by the two
federal lenders, FmHA and CCC, was $8.2 billion less at the end of 1988.
Table 4.1 Total Farm Debt, 1987 and 1988 Lender

1987 1988 Real Non- real Real Non- real estate estate Total estate estate
Total  (billions) 

Commsrcial banksa FCS:

FLBsb Life m companies

Total Individuals and others

Total $14.5 $29.0 $ 43.5 $ 15.4 $29.8 $ 45.2

34.7 0.0 9.5 0.0

9.3 $68.0

0.0 34.7 32.8 9.4 9.4 0.0

16.1 25.6 17.3 17.3

9.0 0.0

0.0 9.3 9.1 0.0 $71.8 $139.8 $66.3 $65.0

31.7 $171.5

0.0 32.8 9.5 9.5 14.7 23.7 11.0 11.0

12.0 Kud&

9.1 $131.3

30.3 %! GM aFRB- revised 1987 figures. bFLBs and Federal Intermediate Credit
Banks merged in 1988. FLB amounts in this report are FCS estimates of the
FLB position without the mergers.

%ebt data* used in this report reflect F'mBA's portfolio on January 1 of the
following year. For example, 1988 data is as of January 1, 1989. 63

I

Fiaure 4.2 Maior Institutional Lenders' Percent of Loan Portfolio

Nonperforminq and/ or Delinauent, 1986- 88 80 Porcont 70 - 60 60 40 30 20 10

0 1

1987 1988

Source: GAO analysis of FmHA data, FCA and FCS data for FLBs and PCAs,
American Council of Life Insurance data for life insurance companies, and
FRB data for commercial banks.

64

NONPERFOtiING AND/ OR DELINOUENT FARM DEBT DECREASED The overall quality of
the major institutional lenders' farm loan portfolios, which reflects
conditions in the farm sector, continued to improve in 1988 for the second
consecutive year. For example, total nonperforming and/ or delinquent loans
held by four of the institutional lenders totaled over $25 billion, an
improvement from the over $29 billion that was nonperforming and/ or
delinquent a year earlier. The overall quality of these lenders' portfolios
continued to be skewed by the poor condition of FmHA's portfolio. Excluding
FmHA, the total nonperforming and/ or delinquent loans held by the three
nonfederal lenders at the end of 1988 was about $10 billion, or 12 percent
of their outstanding debt-- a considerable decrease from the more than $13
billion that was nonperforming and/ or delinquent at the end of 1987.

Table 4.2 Nonperforminq and/ or Delincuent Farm Debt Held by Major
Institutional Lenders, 1987 and 1988

1987 percent of portfolio nonperfom and/ or Lr? nders Amount delinuuenta
(billions) FmAb $16.1 62.9 FKS: C 8.2 22.8 1.8 18.7

Cammercial banksd 1.9 6.5 Lifeinsurance vies 1.3 14.0

Total GL& 27.1 1988 Percent of portfolio nonperforming and/ or Amount
delinouenta (billions)

$15.4 65.0 6.4 19.5 1.3 14.3

1.4 4.7 0.8 8.8 %Zi 24.1 Note: Excludes CXC sinceborrowers
caneitherrepaytheloanor forfeitthe cammodity to satisfy the loan,
CCCacquiredthe collateral onloanstotalingover $6.1 billion and $2.1 billion
in fiscal years 1987 and 1988, respectively. Also excludes "individuals and
other@ since the quality of their portfolio is unknown.

aDefinitions of nonperfonnirg and/ or delinquent farm loans vary somewhat by
lender. bthe FmHAamountistotalunpaidprincipaloutstanding
fordelinquentborrowers. cIncludes FCA- revised 1987 values. dCammerciaL
banks' data are incomplete because all banks are not required to report farm
loan quality data; the data included here apply to non- real estate loans.

65

Figure 4.3 Farm Loan Net Charae- Offs bv Commercial Banks, FLBs, and PCAs,
1984- 88

1.4 Dollan in Blliions 1.2 1.2 1.0 1.0 0.6 0.6 0.6 0.6 0.4 0.4 0.2 0.2

0 0 1984 1984 lQB! i lQB! i 1999 1999 1987 1987 1986 1996 Yaar

- Commercial Banks I I I I Federal Land Banks m Production Credit
Associations

Source: FRB for commercial banks, and FCA and FCS for FLBs and PCAs.

66

- . TOTAJ, FARM LOAN NET CHARGE- OFFS AND NONACCRUAL LOANS DECREASED

Commercial banks, FLBs, and PCAs charged off about $413 million in farm
loans during 1988, a significant reduction from the almost $1.3 billion they
charged off the previous year. Charge- offs are loans written off by lenders
as uncollectible. PCAs had the largest amount of 1988 charge- offs, $159
million, or about 35 percent, less than the previous year. Commercial banks

had $129 million in charge- offs, a 74- percent reduction. FLBs had the
lowest amount of charge- offs, $125 million, a 76- percent reduction.

These lenders had nonaccrual loans totaling over $4.1 billion at the end of
1988. This was more than a $2.2 billion, or 35- percent, decrease in the
amount of nonaccruals at the end of 1987. Nonaccrual loans are loans for
which the accrual of interest has been suspended because full collection of
principal and interest is in doubt. These loans are highly significant
because they are the most severe category of nonperforming loans and may
indicate future loan charge- offs if financial stress continues in
agriculture. FLBs had the largest amount of nonaccrual loans, about $2.8
billion, while PCAs had the lowest amount, $486 million. Commercial banks'
nonaccrual loans decreased to $857, million in 1988 from over $1.2 billion
in 1987. Table 4.3 Farm Loan Net Charge- Offs and Nonacorual Loans for
Various l& nders, 1987 and 1988 Lender

Net charce- offsa N~ nacorualloans~ Fercent Percent 1987 1988 chancre 1987
1988 c& m ---( millions)--- ---( millions)---

$523 $ 125 (76.1) $4,367 $2,763 (36.7) 243 159 (34.6) 766 486 (36.6)
Ccrmmercial bank& 502 &2J (74.3) 1,210 g5J (29.2)

Total %L& S G.& i (67.4) $W @L, wUE aFor the 12 months ending December
31eachyear. %Ls of December 31eachyear. ?Cheamunts includedherearethose
reportedby FRB.

(35.3) Y

67

Fiqure 4.4 FCS Net Income, 1980- 88

1.5 Dollon In BIllIona 1.0 1.0 0.5 0.5

0 0 -0.5 -0.5 -1 .o -1 .o -1.5 -1.5 -2.0 -2.0 -2.5 -2.5 -3.0 -3.0

1989 1981 1982 1982 1904 1965 1986 1997 1999 YOOr

Source: FCA and FCS. 68

FCS' EARNINGS CONTINUED TO IMPROVE In 1988, FCS experienced its first
profit--$ 704 million-- after three consecutive years of losses. The 1988
improvement in earnings reflected, in large part, an increase in net
interest income and a substantial reduction in FCS' allowance for loan
losses.

FCS' 1988 net interest income-- interest income less interest expense--
totaled almost $787 million. After accounting for other income (over $121
million) and expenses ($ 710.5 million), FCS had a $198- million profit. The
$680.5- million reversal in FCS' provision for loan losses, along with a
$174- million loss related to restructuring of debt by three banks and
losses related to the Jackson FLB, resulted in a $704- million net profit.

All FLBs, except the Jackson FLB which is in receivership, had an
improvement in 1988 earnings compared to 1987. In total, the FLBs had net
earnings of $675 million. The combined PCAs in 6 of the 12 FCS districts
showed improvement in 1988 earnings compared with 1987. Total net income of
the PCAs in the 12 FCS districts was $245 million.

Table 4.4 Net Income for FLBs and PCAs, by FCS District, 1987 and 1988 FCS
district

Spokane Sacramento Columbia Wichita St. Paul St. Louis Baltimore Springfield
Louisville Texas Jackson Totalb

1987 1988 chanqe 1987a 1988 Qnanse (
millions) $ (109.6) $ 155.4 $ 265.0 $ 0.9 $ 44.1 $
43.2

(50.4) 90.3 140.7 (2.5) 40.3 42.8 (53.5) 83.9 137.4 (4.3) 27.0 31.3 53.8
160.7 106.9 38.3 33.9 (4.4) 39.7 143.7 104.0 9.1 (9.8) (18.9)

(36.1) 62.5 98.6 48.3 81.8 33.5 (2:) 102.0 76.1 96.8 82.4 4.8 (7.9) (12.7)
(3.4) (2;:;) (11.4) 23.7 21.3 18.3 (5.0) (f : E) 41.5 (2) 46.5 0.2

11.7 78.6 66.9 6.8 (6- O) (12.8) (44.3) (290.5) (246.2) 1.1 0.0 .& AI)

($ 2~ $675. Q $892,2 fxlaL. l $245,2 $144.1 aIncludes some m- revised 1987
values. %otals do not add due to rounding.

Y 69

Fiqure 4.5 Amount of FLB and PCA Nonperformina Loans, 1984- 88

12 Dollam In Billions - Federal Land Banks I - - - Production Credit
Associations

Source: FCA and FCS. 70

FLR AND PCA NONPERFORMING LOANS DECREASED FLBs and PCAs had $7.7 billion in
nonperforming loans as of December 31, 1988, about $2.3 billion less than in
1987. Combined, 18.5 percent of their total outstanding loans were
nonperforming at the end of 1988 compared with almost 22 percent at the end
of 1987. FLB and PCA nonperforming loans include those that have been
restructured; those that are 90 days or more past due but adequately secured
by collateral: those in the process of liquidation, bankruptcy, or
foreclosure: and nonaccrual loans.

The extent of FLB and PCA nonperforming loans continued to vary widely
between FCS districts in 1988. For example, two FLBs had nonperforming loan
rates exceeding 30 percent. One FLB (St. Paul) had more than $1 billion in
nonperforming loans. Among the PCAs, the St. Paul district had the highest
nonperforming loan rate and nonperforming amount, 28 percent and $471
million, respectively. On the other hand, the Springfield FLB and combined
PCAs had 1988 nonperforming loan rates that were less than 3 percent. All
FLBs, except the Sacramento FLB, and the combined PCAs in all districts,
except Texas, had less value in nonperforming loans in 1988 than in 1987.
Table 4.5 FL6 and PCA Nonperforming Loans: Amount and Percent of Total
Outstanding Loans, by FCS District, 1987 and 1988

FCS 1987a district Nonperforming Percentb

(millions) St. Paul s 2,354.4 44.9 Jackson 680.2 40.3 Spokane 569.7 20.1
Sacramento 438.4 15.6 St. Louis 1,013.7 30.0 Oneha 907.2 23.7 Louisville
753.8 27.0 Wichita 487.4 14.1 Columbia 509.2 13.7 Texas 192.0 8.0 Baltimore
77.3 4.3 Springfield 24.4 3.2

TotalC S8,208.0 22.8 1988

Nonperforming (millions)

$1,924.1 468.4 508.8 719.0 567.8 788.8 428.4 414.9 284.2

173.0 64.7

18 4 A $6,360.5

Percentb 1987'

! Percentb Noncerforming (millions)

40.6 f 639.7 35.2 39.1 62.2 16.0 19.4 97.1 25.2 19.0 405.2 21.4 18.9 87.3
16.8 23.8 83.0 18.8 16.4 117.1 14.8 12.9 76.3 15.1

8.4 127.1 15.6 7.6 70.9 8.8 3.5 35.4 5.0 2.3 7.6 1.3

19.8 $1.808.9 18.7 1988

I Percent b Nonperforming (millions)

28.4 13.0 16.7 19.7

8.4 12.8

8.7 9.3 10.2 12.6

3.6 0.9

14.3 0 471.3

48.8 53.6 339.5

44.9 59.6 75.1 46.8

78.9 94.2 28.1

60 A $1.346.8 alncldes FCA- revised 1987 values. 4 ercent of total
outstanding loans which are nonperforming. 'Totals may not add due to
rounding.

71

Fiqure 4.6 pip and pCA- Acquired Propertv Holdings. 1980- 88 1.4 Dollars In
Billions

1980 1981 1982 1983 1984 198! 5 1986 1987 1988 Yur

w Federal Land Banks -I I - Pmhztion Credit Associations

Source: FCA and FCS. 72

FLB- AND PCA- ACQUIRED PROPERTY HOLDINGS AGAIN DECREASED The gross value of
acquired property held by FLBs and PCAs totaled $667.5 million as of
December 31, 1988, which is $297 million less than 1987. These two FCS
elements acquire

property through foreclosure or deed in lieu of foreclosure. The 1988
decrease is the second consecutive year in which FLB- acquired property has
decreased and the third consecutive decrease for PCA- acquired property.

At year- end 1988, FLBs had about $578 million in the gross value of
acquired property, a 30- percent decrease from their year- end 1987 total.
PCAs had about $90 million in the gross value of acquired property, a 33-
percent decrease from 1987. The extent of FLB- and PCA- acquired property
holdings varied widely between FCS districts. For example, the St. Paul FLB
had acquired property that exceeded $200 million while the Springfield FLB's
acquired property was valued at less than $1 million. Among the PCAs, the
St. Paul district had the highest amount, about $29 million, while the
combined PCAs in the Springfield and Baltimore districts each had less than
$1 million in property.

Table 4.6 Gross Value of FLB- and PCA- Acquired Pronertv. bv FCS District,
1987 and 1988 district Percent 1987 1988 --( millionEE change St. Paul
$247.0 $247.1 O. ob St. Iouis 90.3 60.7 (32.8) Sacramento 71.6 58.2 (18.7)
119.3 58.0 (51.4) Jackson 92.6 49.8 (46.2) Texas 17.0 21.6 27.1 spa- 46.3
29.1 (37.1) Wichita 83.4 28.4 (65.9) Louisville 35.0 13.9 (60.3) Columbia
20.9 9.0 (56.9) Baltimore 1.6 1.3 (18.8) Springfield 4.6 0.5 (89.1)

Total f3ZiWi S577,6 (30.4) aIncludes scnt% e FCA- revised 1987 values.
bYLess than 0.1 percent. cTotal does iot add due to rounding.

73 Percent 1987a 1988 chanse --( millions)--

$ 33.7 $ 28.7 7.5 5.5 21.6 12.9 15.0 3.9 3.3 2.9 16.4 11.7 7.7 4.0 10.3 7.5
8.9 4.7 7.0 7.0 2.9 0.5 0.5 0.6 SUC

(14.8) (26.7) (40.3) (74.0) (12.1) (28.7) (48.1) (27.2) (47.2) (8;::) 20.0
(33.3)

Figure 4.7 Farm Loan Foreclosures bv Life Insurance COmDanieS, 1980- 88

900 Dollam In Mllllom 800 800 700 700 800 800 600 600 400 400 300 300 200
200 100 100

0 0 1980 1981 1982 1982 1984 1985 1988 1987 1988 YOW

Source: American Council of Life Insurance. 74

FARM LOAN FORECLOSURES BY LIFE JNSURANCE COMPANIES DECREASED Farm loan
foreclosures by life insurance companies decreased in 1988, the second
consecutive annual decrease. During 1988, life insurance companies
foreclosed on 727 farm loans, a decrease of 788, or 52 percent, compared
with 1987. These 727 loans had a total value of slightly over $364 million,
a $327.5- million decrease in value, or over 47 percent, compared with the
value of 1987 foreclosures.

Additionally, the outlook for a continued reduction in foreclosures by life
insurance companies existed at year- end 1988. For example, the American
Council of Life Insurance reported that both the average delinquency rate
and foreclosure rate for agricultural loans had declined sharply.
Delinquency rates were about 9 percent at the end of 1988, down from 14
percent at the end of 1987. The number of farm loans in foreclosure was at
its lowest level since year- end 1984, at about 2.6 percent at the end

of 1988 compared with slightly over 3 percent at the end of 1987. Life
insurance companies had 1,073 loans in the process of foreclosure as of
December 31, 1988; these loans had a total value of $440.5 million. This was
considerably less than the 1,403 loans valued at $597 million that were in
the process of foreclosure a year earlier. Table 4.7 Life Insurance
Companies' Farm Loan Foreclosure Statistics, 1987 and 1988

Farm loans 1987 1988 Foreclosed:

Number Value (millions) In the process of foreclosure at year- end:

Number Value (millions)

Percent chanse 1,515 727 (52.0)

$691.9 $364.4 (47.3) 1,403

$597.2 1,073

$440.5 (23.5)

(26.2) 75

Fiuure 4.8 Aaricultural and Nonacwicultural Failed Banks, 1982- 88

200 Numbsr of Fallsd Banks 1982 Ysar

1982 1984 1985 1986 1987 1988 - Agricultural Banks I I I I Nonagriiultural
Banks

Source: FDIC. 76

AGRICULTURAL BANK FAILURES DECREASED Agricultural bank failures decreased in
1988 for the third consecutive year. According to FDIC, 29 agricultural
banks failed in 1988-- this is half of the 58 that failed in 1987 or the 59
that failed in 1986.

Most of the 29 agricultural banks that failed in 1988 were located in 4
states: Iowa (7), Kansas and Minnesota (6 each), and Oklahoma (4).

Agricultural banks represented about 25 percent of all banks in both 1987
and 1988. They accounted for 29 percent and 13 percent of the 1987 and 1988
failed banks, respectively.

Table 4.8 Failed Banks: Asricultural and Nonasricultural, 1987 and 1988

Bank tvne 1987 1988 Percent Number Percent Number Percent change
Agricultural 58 28.9 29 13.1 (50.0) Nonagricultural 143 71.1 192 86.9 34.3

Total Note: This table is based on FDIC's definition of an agricultural bank
(25 percent or more of its portfolio in farm loans). In addition, the
failure statistics include banks for which FDIC provided financial
assistance to keep open banks from failing. FDIC provides such assistance
when it costs less than what FDIC would incur if the banks actually failed.

The 1988 failed agricultural banks continued to be much smaller than the
failed nonagricultural banks. According to FDIC, the 29 agricultural banks
had about $17 million in assets on average compared with about $235 million
for the nonagricultural banks. In addition, the 1988 failed agricultural
banks' $17- million average asset size was about the same as the $16-
million average asset size for 1987 failed agricultural banks.

Most 1988 failed agricultural banks reopened following their failure, for
example, as a branch of another bank, and banking operations continued with
little interruption. According to FDIC, about 83 percent of the failed
agricultural banks reopened as a branch of another bank or otherwise
continued operations as compared tiith the 74 percent of failed agricultural
banks which reopened or continued operations in 1987.

77

Ficfure 4.9 Aaricultural and Nonaaricultural Problem Banks, 1982- 88 1200
Numbar of Problsm Banks

1832 Yaar

1333 1w 1935 1933 1937 1988 - Agricultural Banks -1- 1 Nonagricultural Banks

Source: FDIC. 78

,'

PROBLEM AGRICULTURAL BANKS DECREASED The number of problem agricultural
banks decreased by 35 percent in 1988 compared with 1987, the second
consecutive annual decrease. l FDIC reported that as of December 31, 1988,
333 agricultural banks were classified as problem banks-- 180 fewer than the
513 agricultural banks classified as problem banks a year earlier. Slightly
over 10 percent of all agricultural banks were classified as problem banks
at the end of 1988. A year earlier,

slightly over 15 percent of all agricultural banks were problem banks. The
total number of agricultural banks declined by about 3 percent in 1988
compared with 1987. In addition, agricultural banks represented about 25
percent of all banks in 1988 and they accounted for almost 24 percent of the
1988 problem banks. A year earlier agricultural banks also represented about
25 percent of all banks, but they accounted for almost 33 percent of the
problem banks.

Table 4.9 Problem Banks: Aqricultural and Nonasricultural, 1987 and 1988
Banks 1987 1988 Percent

Number Percent Number Percent chance Problem banks: Agricultural 513 32.9
333 23.7 (35.1)

Nonagricultural 1,046 67.1 1,073 76.3 2.6 Total 1.559 - 1.406 1oo. o (9.8)
Total banks: Agricultural 3,364 24.6 3,267 24.9 (2- 9)

Nonagricultural 10,335 75.4 9,871 75.1 (4.5) Total 13.699 100.9 13.138 1oo.
o (4.1)

Note : This table is based on FDICls definition of an agricultural bank (25
percent or more of its portfolio in farm loans). lttProblem bank" is the
term used by FDIC to classify any bank that warrants more than normal
supervision because of financial and/ or other weaknesses, which, if left
uncorrected, could eventually impair the bank's future viability. Such a
bank, therefore, has a greater than normal potential for failure.

79

Figure 4.10 Aaricultural and Nonaqricultural Vulnerable Banks,

1982- 88 260 Number of Vulnonblo Banks

200 0 0

1992 1992

Year Year 1992

1992 1984 1984

1995 1995 1996 1996 1997 1997 1999 1999 - Agricultural Banks I I I -
Nonagricultural Banks

Source: FRB. w

80

. ~GRICUT~ TUR&, L BANKS WLNERABLE FAITXJRE DECREASED

The number of agricultural banks that are particularly vulnerable to failure
decreased in 1988 compared with 1987, the second consecutive annual
decrease. According to FRB, agricultural banks that are vulnerable to
failure declined by almost 33 percent in 1988 compared with 1987. FRB
identifies a bank as being particularly vulnerable to failure when the bank
has nonperforming loans exceeding capital. 2 Many of the banks that failed
in recent years met this condition shortly before their failure. As of
December 31, 1988, FRB identified 55 agricultural banks as vulnerable to
failure-- 27 fewer than the 82 categorized as vulnerable a year earlier. Of
the 55 vulnerable agricultural banks, 44 were located in 5 states: Texas
(16), Oklahoma (lo), Kansas (8), Minnesota (5), and Nebraska (5). Some
vulnerable banks, such as those in Texas and Oklahoma, have been adversely
affected not only by the problems in agriculture but also by the continuing
depressed condition of the energy industry in those states. FRB- defined
agricultural banks accounted for about 19 percent of all 1988 vulnerable
banks. A year earlier, FRB- defined agricultural banks accounted for almost
28 percent of all vulnerable banks.

Table 4.10 Vulnerable Banks: Aqricultural and Nonasricultural, 1987 and 1988
Banks 1987 1988 Percent Number Percent Number Percent chanse Agricultural 82
27.9 55 18.7 (32.9) Nonagricultural 212 72.1 239 81.3 12.7

Total im 1QO. O 0.0 Note: This table is based on FRB's definition of an
agricultural bank: a bank with a farm loan ratio that is above the national
average of farm loan ratios at all banks (slightly less than 16 percent in
1988).

2Nonperforming loans are loans 90 days or more past due and still accruing
fnterest, and nonaccrual loans; excluded are renegotiated loans. Capital is
equity capital plus loan- loss reserves.

81

Fisure 4.11 J'mHA Loans bv Program: Amount Owed bv Delinquent Borrowers.
1980- 88

9 Dollara In BIlliona 1989 Yaar

1981 1982 1983 1984 199! 5 1986 1987 1969 - Natural Disaster Emergency -1- 1
Farm Ownership m Farm Operations .W n m Economic Emergency

Note : This figure excludes FmHA's soil and water, recreation, and economic
opportunity programs. Source: FmHA.

82

WHILE SOME IMPROVEMENT HAS OCCURRED IN FmHA'S LOAN PORTFOLIO; A LARGE AMOUNT
OF DELINQUENT LOANS REMAIN As of December 31, 1988, FmHA had about $23.7
billion in outstanding individual loans to farmers, a $1.9- billion decrease
from a year earlier. As the federal "lender of last resort" to the nation's
farmers, FmHA's portfolio continues to contain an extremely high amount of
delinquent loans. At the end of 1988,

FmHA borrowers were past due on about $9.7 billion in principal and interest
payments. However, the outstanding balance on loans to delinquent borrowers
totaled $15.3 billion at the end of 1988, an $800- million decrease from
1987.

The total outstanding principal held by delinquent borrowers on three of
FmHA's largest farm loan programs decreased in 1988 compared with 1987;
disaster emergency loans had the greatest decrease, about $500 million,
while economic emergency and operating loans decreased by $200 million and
$100 million, respectively. However, the outstanding balance held by
delinquent borrowers on farm ownership loans increased by $100 million.

Table 4.11 FmHA Outstanding Principal and Delinquent Loans,

by Program, 1987 and 1988 1987 Total Delinquent Percent of FmHA loan
principal Amount borrowers' principal program outstanding past due principal
delinquent

------------( billions)------------ Disaster

emergency 9 8.9 $5.3 t 7.0 78.7 Farm ownership 7.4 0.7 3.2 43.2 Farm
operations 5.4 1.9 3.2 59.3 Economic

emergency 3.6 1.6 2.5 69.4 Other 0.3 0.1 0.2 66.7

Total' $25.6 89.6 $16.1 62.9 --- = - 1988

Total Delinquent Percent of principal Amount borrowers' principal
outstanding past due principal delinquent ------------(
billions)------------

9 8.1 $5.3 9 6.5 80.2 7.2 0.8 3.3 45.8 5.0 1.8 3.1 62.0

3.2 1.6 2.3 71.9 0.3 0.1 0.1 33.3 $23.7 $9.7 $15.3 64.6 - = = Note: FmHA
recognizes loan delinquencies as only the total payments past due rather
than the total principal on which payments are past due. This latter
definition is used by the other major institutional lenders (as listed in
table 4.2).

'Totals may not add because of rounding. 83

Ficrure 4.12 Aqj. nq of FmHA's Past Due Amount. 1980- 88

0 DotIan, in Billions 6 7 6 5 4 3 2

1960 1981 1962 1983 1984 1985 1985 1987 1955 YOW

- 1 Year or Less -1- m 1 toLessThan2Years m 2 to Less Than 3 Years n n n n
3Yearsor More

Source: FmHA. 84

PAST DUE LOAN PAYMENTS TO FmHA CONTINUED TO INCREASE The duration of past
due payments on FmHA's farmer pro ram loans continues to be a significant
problem for the agency. 9 As of December 31, 1988, FmHA farmer program
borrowers were past due on $9.7 billion in payments, a slight increase from
last year's $9.6 billion level. However, the amount and percent that had
been past due for a lengthy time period continued to increase in 1988.
Almost $8.3 billion, or about 86 percent, of FmHA's past due amount

was at least 3 years overdue, a 5- percent increase compared with 1987.
Also, about $9.2 billion, or 95 percent, of the past due amount was overdue
for more than 1 year, a slight increase compared

with the situation in 1987. Table 4.12 Aainq of FmHAls Past Due Amount, 1987
and 1988

Time past due 1 year or less

1987 1988 Amount Percenta Amount Percenta (billions) (billions)

$0.5 5.3 $0.5 4.8 1 to 2 years 0.5 5.5 0.3 3.4 2 to 3 years 0.7 7.3 0.6 6.2
3 years or more 7.9 81.9 8.3 85.6

Total %LL aPercent of total amount past due by length of delinquency.
Percent may not compute because of rounding.

Three states accounted for the highest amounts past due at the end of 1988:
Georgia ($ 928 million), Texas ($ 898 million), and Mississippi ($ 848
million). Two other states-- Louisiana and California -- each had about $600
million past due. Y 3Past due payment amounts are overdue principal and
interest.

85

SECTION 5 OBJECTIVES, SCOPE, AND METHODOLOGY

87

In May 1989, the staff, Senate Committee on Agriculture, Nutrition, and
Forestry, and the House Committee on Agriculture requested that we conduct a
study of the financial condition of American agriculture as of December 31,
1988. The objective of the study was to determine what happened to American
farmers and their lenders as a result of 1988 operations: Had their
financial condition improved or deteriorated further from their position as
we reported in our previous reports on this topic? 1 We were requested to
provide the Committee Chairmen with a written report on the results of our
study. In October 1989, prior to issuance of the report, we preliminarily
briefed several members and staff of the two Committees on the results of
our study.

To determine the financial condition of American agriculture following 1988
operations, we gathered and analyzed a large amount of data from both public
and private sources. We discussed various aspects of the financial condition
of American agriculture with officials from a variety of offices including
ERS, FCA, FDIC, and FRB. In addition, we reviewed literature, legislation,
and

publications concerning the financial condition of American agriculture,
economic conditions, the farm sector, and the financial services industry
that serves agriculture. The data sources we used in this study included
ERS, FmHA, and CCC within USDA, FCA, FCS, FDIC, FRB, the American Council of
Life Insurance, and others. We did not independently verify the accuracy of
the data obtained.

We used information from USDA to analyze the economic environment
surrounding the farm sector, including data on production, consumption, and
exports. We also used ERS balance sheet and income statement information to
analyze the financial condition of the farm sector. Additionally, USDA's
Farm Costs and Returns Survey was the source for some information contained
in this report, such as the number of farms and the amount of debt by debt-
to- asset ratio, income and solvency position, and sales class. In addition,
other sources provided valuable information on

the economic environment and the farm sector, including CCC information on
federal payments and loans to the nation's farmers and the Economic Renort
of the President transmitted to the Congress in January 1989. Information on
the financial sector was compiled from a variety of sources, including FDIC
and FRB for commercial bank information, FmHA and CCC for information on
their loans, the American Council of Life Insurance for information on life
insurance companies' loans, and ERSI estimate of the farm debt held by other
lenders. In addition, FCS information was obtained from

'Our four previous reports are listed in "Related GAO Productstt in this
report. (See page 92.) 88

FCA and the System's individual Farm Credit Banks. These banks were created
during 1988 following the merging of FCS' FLBs and Federal Intermediate
Credit Banks. Farm Credit Banks' officials reconstructed and provided us
with an estimate of what their FLB financial position would have been
without the mergers.

We used final 1988 data, except in table 3.12 where we used Dun & Bradstreet
Corporation preliminary information on agriculture business failures because
final information was not available at the time of our review. In addition,
the 1987 and 1988 data in tables 3.8, 3.9, and 3.10, which is based on
USDA's Farm Costs and Returns Surveys, is not directly comparable with 1985
and 1986 data because of changes in the methodology to account for a greater
number of smaller farms when compiling the 1987 and 1988 information. Also,
the FmHA data on total and delinquent debt reflect payments due and not paid
as of January 1 of the following year, rather than December 31; for example,
1988 data is as of January 1, 1989. Further, some 1987 amounts used in this
report differ from the 1987 amounts reported in our October 18, 1988, report
(GAO/ RCED- 89- 33BR) because of subsequent revisions to source data. We
have noted on the tables in this report where there have been significant
revisions to the previously reported 1987 data.

Portions of this briefing report have been discussed with officials of ERS,
FmHA, FDIC, and FCA, and their suggestions were incorporated where
appropriate. We did not obtain formal agency comments on a draft of this
report, however, because of its informational nature.

89

APPENDIX I MAJOR CONTRIBUTORS TO THIS BRIEFING REPORT RESOURCES, COMMUNITY,
AND ECONOMIC DEVELOPMENT DIVISION, WASHINGTON, D. C. William E. Gahr,
Associate Director John P. Hunt, Jr., Assistant Director Patrick J. Sweeney,
Assignment Manager Clifford J. Diehl, Evaluator- in- Charge

Shirley M. Christensen, Writer- Editor APPENDIX I

90

RELATED GAO PRODUCTS Farm Finance: Financial Condition of American
Agriculture as of December 31, 1987 (GAO/ RCED- 89- 33BR, Oct. 18, 1988).
Farm Finance: Financial Condition of American Asriculture as of December 31,
1986 (GAO/ RCED- 88- 26BR, Oct. 20, 1987). Farm Finance: Financial Condition
of American Asriculture as of December 31, 1985 (GAO/ RCED- 86- 191BR, Sept.
3, 1986). Financial Condition of American Asriculture (GAO/ RCED- 86- 09,
Oct. 10, 1985).

(02917s7) 92

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