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FARM CREDIT SYSTEM / FARMER MAC JJAN.U- AFERBY. 22001188
and rural America. In 2017, continued downward pressure on grain prices due to large supplies relative to demand following bumper crops in recent years has stressed less ef cient producers and those renting a large share of their acreage. Low grain and oilseed prices have helped control feed costs for livestock, poultry, and dairy farmers, and they have bene ted from relatively strong demand. Nevertheless, robust production in the livestock sector will likely lead to lower prices and pro t margins in coming months. The general economy continues to expand and mortgage interest rates remain at historically low levels. This has bene ted the housing sector, which should translate into improved credit conditions for the housing-related sectors such as timber and nurseries. Overall, the agricultural sector remains subject to risks such as a farmland price decline, which has been underway since 2015 in the Midwest, rising interest rates, continued volatility
in commodity prices, weather-related catastrophes, and long-term environmental risks related to climate change. (Ef cient, Effective, Accountable: An American Budget Analytical Perspectives, Of ce of Management and Budget, Fiscal Year 2019)
The Trump administration’s tax bill reduced FCS’s competitive edge in real estate lending
In the January issue of Farm Credit Watch, Bert Ely wrote:
One unintended effect of the wide-ranging tax legislation Congress enacted last month was a slight reduction in the competitive edge the FCS has long had for loans secured by real estate. The pro ts FCS institutions earn on real estate loans have always been exempt from federal and state income taxes while FCS pro ts on loans not secured by real estate, such as equipment
and production loans, are subject to federal income tax, but not state and local income taxes. The reduction in the basic federal corporate income tax rate from 35 percent to 21 percent effectively has reduced, but certainly did not eliminate, the tax disadvantage bankers have long suffered in competing against the FCS for loans secured by real estate. For banks taxed as corporations, that rate reduction translates into 14 basis points of higher after-tax income for every 100 basis points of pre-tax income on a bank loan secured by farm real estate. The owners of banks taxed as Subchapter S corporations also will enjoy a comparable tax bene t. The FCS, of course, still has a funding cost advantage by virtue of its GSE status, especially for longer term, xed rate loans, but every basis point of a reduced tax burden helps to lessen the FCS’s unfair and unjusti able tax and funding cost advantages. Unfortunately, the tax bill did not address the FCS’s ongoing tax advantages that cost taxpayers $1.61 billion in 2016. (Farm Credit Watch, Bert Ely, January 2018)
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