Farm Credit primarily obtains its money by selling debt securities in national and international money markets to investors. This method allows the system to access a vast pool of capital to support the financial needs of American agriculture and rural communities.
The Farm Credit System is a nationwide network designed to meet the credit needs of farmers, ranchers, rural cooperatives, and other eligible borrowers. It operates as a cooperative, meaning that its borrowers are also the owners of the local lending associations.
How the Funding Mechanism Works
The structure of the Farm Credit System is crucial to understanding its funding sources:
- Four Farm Credit Banks: At the core of the system's funding are four Farm Credit Banks. These banks are responsible for raising the necessary capital from global financial markets.
- Issuance of Securities: These four banks collaboratively issue a variety of highly-rated debt securities, such as bonds and notes. These securities are sold to a diverse range of investors worldwide, including institutional investors, pension funds, and individual investors. This direct access to capital markets ensures a stable and robust funding stream.
- Local Associations: The capital raised by the Farm Credit Banks is then channeled to the 56 local Farm Credit Associations across the country. These associations are the direct lenders that provide loans and financial services to farmers, ranchers, and rural businesses in their respective regions.
This cooperative structure, combined with direct access to large-scale capital markets, enables Farm Credit to provide reliable and competitive financial products tailored to the unique requirements of the agricultural sector.
