June 12, 2000

Mr. Grady Bilberry
Director
Price Support Division
Farm Service Agency
1400 Independence Avenue, SW
Mail Stop 0512
Washington, DC 20250-0512

Re: Farm Storage Facility Loan Program, 654 Federal Register 30345, May 11, 2000

Dear Mr. Bilberry:

The American Bankers Association (ABA) appreciates this opportunity to comment on the interim rule issued by the US Department of Agriculture (USDA), Commodity Credit Corporation (CCC), and published at 654 Federal Register 30345 on May 11, 2000, implementing the Farm Storage Facility Loan Program (FSFLP). The ABA brings together all categories of banking institutions to best represent the interests of the rapidly changing industry. Its membership-which includes community, regional, and money center banks and holding companies, as well as savings associations, trust companies, and savings banks-makes the ABA the largest banking trade association in the country.

As we understand the interim rule, producers would be able to borrow up to $100,000 through the FSFLP for a term of up to 7 years at an interest rate "equivalent to the rate of interest charged on Treasury securities of comparable maturity." Inasmuch as many of ABA's members maintain significant agricultural loan portfolios, we applaud USDA for making available a tool that will help America's producers better control the marketing of their commodities and thereby receive a better price for those commodities when they are ultimately sold. However, the ABA strongly encourages USDA to implement a Guaranteed Farm Storage Facility Loan Program (GFSFLP) in conjunction with the FSFLP. A GFSFLP would better leverage taxpayer dollars while assisting more producers; free valuable USDA staff for administration of commodity, conservation, and disaster programs; and better utilize the expertise of private sector lending institutions.

Direct loan programs require greater financial resources to support fewer producers because the allocation of funding for a direct loan program is 1:1. Guaranteed loan programs, on the other hand, allow the federal government to multiply the allocation of funding. Even if the office of Management and Budget (OMB) were to determine that the subsidy rate on a GFSFLP was to be 2:1, such a program would assist twice the number of producers than the FSFLP. Creation of a GFSFLP will allow the FSA to leverage the financial resources dedicated to the FSFLP with the financial resources of private sector lenders. With private sector lenders initiating and funding loans for storage facilities, many more producers can be helped by the addition of a GFSFLP.

An additional benefit of the GFSFLP is that it would free USDA staff to deliver the many vital commodity, conservation, and disaster programs for which the department is responsible. USDA's Farm Service Agency (FSA) has suffered dramatic reductions in staff over the last few years and as a result, the remaining staff is at times overwhelmed with the workload associated with the various programs administered by the agency. This is especially true with a new program. Creation of a GFSFLP will allow the FSA to leverage its staff with that of private sector lenders and thereby deliver assistance to producers in a more timely fashion.

Credit underwriting is one of the principal tasks of a private sector bank. We believe that it would be in the best interest of both producers and taxpayers to have USDA harness the skills and institutional knowledge of the banking industry. A GFSFLP would help ensure that delivery of credit to producers is as timely as possible, reaches the largest number of producers, is delivered at the lowest possible cost, and is done in a safe and sound manner.

Since the early 1980s, the USDA guaranteed farm ownership and operating loan programs have existed together with its direct ownership and operating loan programs. Over 5,000 private sector lenders currently participate in the guaranteed loan programs and USDA data clearly indicate that these lenders are doing well in managing and servicing the programs. At the end of fiscal year 1999 there were 49,279 guaranteed loans outstanding totaling $7.327 billion, 2.4 percent of which was delinquent, compared with 148,829 direct loans outstanding totaling $8.935 billion, 15.6 percent of which was delinquent.

In reviewing the interim rule, it appears that the FSFLP does not differ materially from existing USDA direct loan programs. It follows that a GFSFLP would not differ materially from existing USDA guaranteed loan programs and that USDA could very quickly promulgate regulations for such a program and have it operational in time for producers to take advantage of the program to build storage for 2000 crops.

If one of the goals of the FSFLP is to provide producers with below market interest rates on storage loans, USDA could achieve this through the GFSFLP with the addition of an Interest Rate Buy-Down (IRB). The FSA currently has a very extensive program through the subsidized guaranteed operating loan program. Under the subsidized program, banks reduce the borrower's interest rate and USDA reimburses the bank up to 4% of what would have been the market rate of interest. Therefore, the producer receives the benefit of a below market interest rate at the same time the program produces all of the positive results mentioned earlier in this letter.

In conclusion, the ABA strongly encourages USDA to implement a Guaranteed Farm Storage Facility Loan Program. The banking industry has proven over time that it can effectively and efficiently deliver a guaranteed loan program. The success of the current guaranteed loan program speaks volumes for the potential of the GFSFLP. Furthermore, the GFSFLP would make more efficient use of taxpayer dollars and free valuable USDA staff for administration of other programs. If you have any questions regarding the position of the ABA on this matter, please do not hesitate to contact me, John M. Blanchfield, Director of the Center for Agricultural and Rural Banking at (202) 663-5100, or Robert J. Fouberg, Senior Counsel for Agriculture and Rural Banking, at (202) 663-5436.

Sincerely,

Cristeena G. Naser

Questions? Please contact Cristeena Naser for more information.