16. Year-to-year comparisons cannot be made now

because of the phase-in for Y3S reporting. Not all institutions had fully implemented the new requirements until January 1, 2001. Once the 2002 results are available, comparisons can be made with 2001 data. Regional comparisons may remain difficult because of differences in typical size farming operations. Also, comparisons with other lenders will not be possible because other lenders serving farmers do not report on young or beginning farm loans and use a larger definition for small farm loans.

17. System data on service to YBS farmers and ranchers are reported as of the end of the calendar year. The 2001 data will be available in April 2002. 18. The totals are not mutually exclusive and, depending on characteristics, a borrower may be counted in two or even all three categories. Also, it is not unusual for individual member-borrowers of System cooperative lending associations to be members of more than one association and to have multiple loans.

and ranchers. Congress and FCA see the Farm Credit System as being in a unique position to develop YBS programs that coordinate with other governmental programs, spread risks, and take a longerterm perspective in lending to these groups.

Section 4.19 of the Farm Credit Act and FCA regulation 614.4165(b) require each System bank to report yearly on operations and achievements under programs that benefit YBS farmers and ranchers. In addition, in December 1998, the FCA Board adopted a policy statement on YBS farmers and ranchers. The policy statement emphasized the need for each association to renew its commitment to be a reliable, consistent, and constructive lender for YBS customers. To implement the policy statement, FCA also issued a Bookletter to the System that provided new definitions and reporting procedures to be fully phased in by January 1, 2001. The revisions will improve our ability to analyze and report on the System's service to all YBS borrowers. Year-to-year comparisons can be made starting in 2003, once we have two years (2001 and 2002) of data under the fully phased-in reporting requirements. Because of differences in data definitions and in data collection methods, YBS data is not comparable to Census of Agriculture data.

Service to YBS farmers and ranchers has been a special focus area in the examinations of FCS institutions for the past several years, and it will continue to be one in 2002. FCA encourages all System associations to analyze their lending markets and assess their own market penetration. If this assessment suggests that an association needs to further penetrate the YBS market, we encourage

the association's board to develop new programs, strengthen existing programs, or provide added incentives to contribute to the success of their marketing programs to these farmers. Thus, FCA's oversight increases awareness of the public policy mission in this area and prompts associations to provide added resources to serve this market segment. Going forward in 2002, PCA has developed a performance measure to evaluate more precisely our success in ensuring that associations maintain adequate YBS lending programs.

YBS Loans Outstanding

As of year-end 2000, 16.9 percent of the number of the System's loans outstanding to farmers and ranchers were to borrowers age 35 or under (see Table 4). Borrowers with 10 or fewer years of farming experience accounted for 21.0 percent of loans. Loans to small farmers (those with annual sales under $250,000) accounted for 55.1 percent of loans. The corresponding figures for the total dollar volume of loans outstanding were 12.1, 17.3, and 29.1 percent. Average loan sizes varied from $57,528 for small farmers to $89,828 for beginning farmers (averages include commitments).

YBS Loans Made

Loans and commitments made during 2000 represent current lending activity and, therefore, are a good measure of the current service to YBS borrowers. Of the total number of FCS loans made to farmers during 2000, 16.5 percent were to young farmers, 19.1 percent to beginning farmers, and 55.5 percent to small farmers (see Table 5). The corresponding percentages in terms of the dollar volume of loans made were 10.1, 14.2, and 23.6 percent. Average loan sizes were $59,386 for small farmers, $85,380 for young

When he left his family's small farm in Mitchell County, Georgia, after high school and college, Captain Donnie Cochrane devoted his life to the Navy, serving as a pilot aboard aircraft carriers patrolling the Pacific Ocean, Mediterranean Sea, and Indian Ocean. A former commander of the Navy's Flight Demonstration Squadron (The Blue Angels), Cochrane has flown more than 5,350 hours and made 888 carrier landings, earning two Legion of Merit medals and three Meritorious Service medals among his many honors. But always, there was the land and the legacy that he remembered - his grandfather's farm of 250 acres off Highway 65 in Mitchell County.

When Captain Cochrane was stationed close to his family home, he saw an opportunity to meld his interests. Tearning up with his father and brother Louis, he built four modern poultry houses to raise broilers, and he chose AgFirst Farm Credit to finance the operation. "When I checked with Farm Credit, they were very familiar with poultry financing. The rates were very competitive and the patronage refund was very attractive," Donnie said. "I have been quite pleased with the professional and expeditions service I received from

the staff of the Camilla branch office," said Cochrane. "In addition to being competitive, they make you feel at home and they are happy to assist in finding a solution to your financing needs."

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The Cochrans raised nearly 21,500 broilers in each house, and used agricultural and management innovations to ensure a smooth operation. Experience and consistent management are vital, notes Cochrane. "You must always make sure that everything you can control, you control to the very best of your ability, always staying on top of things and using the newest and latest technology available."

Donnie uses the latest technology on the family farm as well, and recently installed an irrigation system to give the crops an advantage over dryland crops. "Irrigation is a must in this area now if you want to have a chance of making a crop. And yes, Farm Credit was willing to help me in this investment for the farm." After 23 years with the Navy, Cochrane is planning his future with his wife, Ermarvanay, and their four children. "I have a soft spot in my heart for farming" Donnie said, "and I always want to be close to the land".

farmers, and $103,324 for beginning farmers and ranchers; these loan sizes compare with an overall average loan made (including commitments) of $139,531 for the year 2000. The similarity of these percentages to those for the number and volume of loans outstanding suggests that the System has preserved its service to these important borrower groups during the recent period of unfavorable farm prices.

YBS Programs

Annually, each FCS association responds to the Agency's questionnaire on YBS programs. As of year-end 2000, the number of institutions with specific YBS goals was increasing. Compared with three years ago, the percentage of institu tions with goals has doubled. As one would expect, YBS goals vary widely because of the demographics and economics of agriculture across the country. For example, one Agricultural Credit Association reported goals of 20 percent of its number of loans for young, 35 percent for beginning, and 35 percent for small farmers, while another reported goals of 15 percent, 15 percent, and 40 percent, respectively, for the same categories.

Another question asks about board oversight through periodic reporting. About 83 percent of institutions require YBS borrower loan performance to be reported to their board. Most report simply the number or the volume of YBS loans; 25 percent report on credit quality measures. Most institutions require annual reporting, although about 17 percent report at least quarterly. This is a substantial improvement since 1998 when only two-thirds of association boards had a board reporting requirement for YBS

About 55 percent of System associations apply differential underwriting standards for loans to YBS borrowers or allow for exemptions. Examples include higher loan-to-market value ratios or lower debt repayment capacity standards than for other borrowers. A little more than onethird offer lower interest rates, and about 20 percent offer lower loan fees for YBS borrowers.

USDA's Farm Service Agency is the primary agency offering governmentguaranteed loans for farmers, although a small portion of guaranteed loans are made through the Small Business Administration (SBA) and various state programs. A significant portion of the System's FSA guaranteed lending activity focuses on young, beginning, and disadvantaged borrowers. On average, System associations have about 57 percent of the number and 53 percent of the volume of YBS loans under government guarantee, almost all through FSA.

Associations offer a wide range of training programs or other services that benefit YBS farmers and ranchers. The most common program is training in business and financial skills; about 50 percent offer this service. About 45 percent offer leadership training. For example, one ACA provides a free executive institute for young farmers held in two sessions over a two-year period. Subjects include accounting, financial management with goals and business plans, family communication and estate planning, and economic outlook.

Other outreach activities are offered in conjunction with organizations such as state or national young farmer groups,

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19. PSA typically guarantees 90 percent of the loan principal. Borrowers qualifying for the program must be unable to obtain sufficient credit else where at reasonable rates and terms and must meet minimum cash flow requirements. Lenders must pay a 1 percent guarantee fee that can be passed on to the borrower.

20. Loans to farmers include rural housing loans (some of which are to non-farmers), marketing and processing loans, farm-related business loans, and miscellaneous loans. A small additional volume of guaranteed lending is under other Federal or state programs.

cooperative association leadership programs, and 4-H or local chapters of the National FFA Organization (FFA). Many associations also provide financial support for scholarships, FFA, 4-H, and other agricultural organizations. In addition, most associations offer various financial services programs that assist in financial management, including estate planning, record keeping, tax planning and preparation, and farm business consulting, Sometimes associations discount or waive the cost of these services for YBS farmers and ranchers.

Helping Farmers Through USDA Loan Guarantees

Use of USDA's guaranteed loan program, run by the Farm Service Agency, has been increasing among System institutions. The program gives System institutions the opportunity to reduce credit risk while making loans to borrowers who would not otherwise meet underwriting standards. The program also makes it easier for lenders to continue financing existing borrowers who may be relatively new to farming or may be facing financial hardship.

Through our examination practices and regulations, we encourage Farm Credit System lenders to obtain guarantees to reduce risk and meet the needs of the agricultural community. As discussed in a memorandum issued to all System institutions on July 10, 1998, FCA affords guaranteed loans preferential treatment in the application of risk rating systems and in the calculation of regulatory capital ratios. Normally, loans guaranteed by USDA or other U.S. Government agencies that are performing as agreed are classified as Acceptable/Performing loans. Also,

even though repayment problems or other credit weaknesses may exist, examiners do not take exception if the institution maintains the loan in an accrual accounting status. Further, institutions are not required to maintain as much capital for guaranteed loans (20 percent of the balance versus 100 percent for nonguaranteed loans) when determining their regulatory capital levels.

Although System institutions take advantage of the FSA guarantee program to help a wide range of borrower types, the largest group of borrowers assisted is the System's young, beginning, and small borrowers. As noted earlier, slightly more than half the System's YBS ioans carry FSA guaran

tees.

From September 30, 1998, to September 30, 2001, total loans outstanding to farmers with an FSA guarantee increased by $500 million to $1.495 billion, or 50 percent. The System's use of the guaranteed loan program has increased faster than overall loan growth during the same period. As of September 30, 2001, 2.5 percent of the System's loans to farmers were reported as having an FSA guarantee, compared with 2.0 percent three years earlier. However, the System's share of all PSA guaranteed loans is just 19.3 percent, below the System's overall market share of farm debt.

More than 95 percent of System institutions participate in the FSA program. While use at individual associations varies widely, 22 percent of all associations (27) had FSA guaranteed volume of more than 6 percent of their total lending volume as of September 30, 2001. However, a nearly equal number had guaranteed lending volume of less than 1 percent of their