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How Rural Land Financing Has Changed Over Time

The United States’ agricultural sector has a rich, dynamic history full of thriving successes and severe economic hardships. One thing that hasn’t changed, though, is the need for reliable financing for farmers and rural landowners.

Farmers and rural landowners have been more vulnerable than most other workers to the dips and rises in the nation’s economy. As a result, rural land financing has changed over time to better support landowners in the face of an ever-evolving economy, worldwide demand fluctuations, and the introduction and modification of different government acts and bodies. Learn more about the history of rural land financing and how rural landowners today can find competitive loans with this overview.

Rural Crises in the Early 1900s

Though agricultural development and settlement boomed in the late 1800s with the help of the Homestead Act, that growth started to wane going into the twentieth century. By the early 1900s, the Homestead Act had already given away most of the free land in the West. This left farmers who were looking to purchase new land with a need for long-term credit. However, agricultural loans were only available on short-term notes and with high interest rates. Affordable credit became difficult if not impossible to find, leaving many farmers unable to expand or even hold onto their land.

In 1908, President Theodore Roosevelt began addressing the rural land crisis by appointing the Country Life Commission to research existing issues and potential solutions. By the time the election of 1912 came around, every major political party ran on platforms that emphasized the creation of an agricultural credit system. In 1913, President Woodrow Wilson sent ambassadors to Europe to study successful agricultural development systems, such as cooperative land-mortgage banks and rural credit unions. This research and the recommendations the commission of ambassadors presented set the groundwork for the Federal Farm Loan Act.

The Federal Farm Loan Act

President Wilson signed the Federal Farm Loan Act into law in 1916. This led to the creation of a federal land bank in each of the 12 districts the act established across the country. It also created hundreds of national farm loan associations to serve under those federal land banks. All of this set up the initial framework for the Farm Credit System we have today.

With funding from the federal government, these farm loan banks could provide long-term credit to farmers looking to develop and expand their land. Additionally, the Farm Loan Act made it so that part of each loan went toward purchasing stock in the farm loan association, which made the borrowers owners of the association.

Downsides of the Federal Farm Loan Act

While the Federal Farm Loan Act established options for long-term credit, it failed to provide farmers with affordable short-term loans. Though the government eventually set up 12 federal intermediate credit banks with the Agricultural Credits Act of 1923, these institutions couldn’t directly lend to farmers. Instead, they existed to help commercial banks, agricultural cooperatives, and other lenders offer more competitive short-term loans.

However, few commercial banks participated in the system, so short-term credit remained difficult to obtain. Meanwhile, the price of agricultural products fell in the 1920s after the demand from World War I ended.

Agricultural Support Amid the Great Depression

Like the rest of the country, rural landowners suffered major losses during the Great Depression. When President Franklin D. Roosevelt took office in 1933, he worked quickly to stabilize the agricultural sector. He implemented the Commodity Credit Corporation (CCC) to provide additional loans to farmers. The CCC created the opportunity for farmers to obtain loans that hinged on the prices of their crops. Crop prices that were higher than the loan rate allowed farmers to pay off their loans and make a profit. Farmers with crop prices below the loan rate would forfeit their crops, but the CCC would cancel their debts.

The Farm Credit Act of 1933

The Farm Credit Act of 1933 reformed and expanded the Farm Credit System. It allowed lenders to provide credit for all types of agricultural activities and expanded emergency credit funds for farmers. The Farm Credit Act established 12 federal land banks for long-term agricultural land loans and 12 federal intermediate credit banks for short- to intermediate-term loans. It also created 12 district banks to support farmers’ cooperatives, and one central bank to support those district cooperative banks with loans that surpassed their credit capacities.

President Roosevelt also established the Farm Credit Administration (FCA) to unify all existing agricultural credit organizations. The FCA was in charge of chartering and overseeing all federal credit unions from 1934 to 1942, when the responsibility moved to the Federal Deposit Insurance Corporation (FDIC).

Demand Increases With World War II

Wartime demand brought financial success for the US’s agricultural sector at the beginning of World War II. Agricultural prices rose as both domestic and international demand increased. After the war, farmers continued to thrive as demand stayed high due to the end of rationing in various nations and an increase in foreign aid.

This economic success led to a period of growth and evolution. The commercialization of the agricultural sector began as more and more farmers were able to afford new equipment and pursue technological advancements.

The Farm Credit Act of 1971

United States agriculture continued to thrive well into the 1970s. The Farm Credit Act of 1971 expanded the authority of the Farm Credit Administration to adapt to the industry’s evolving needs. The act created more flexibility in agricultural lending—including authorizing lenders to offer credit to rural landowners.

The Agricultural Credit Act of 1987

This agricultural boom ended in the 1980s, when rising inflation and a drop in farm prices created an agricultural depression. In response, the government passed the Agricultural Credit Act of 1987 to provide fiscal aid to vulnerable institutions within the Farm Credit System.

This act also established the Federal Agricultural Mortgage Corporation, also known as Farmer Mac. Farmer Mac set up a secondary market for agricultural real estate loans. It replenished lender funds, increased long-term credit, and stabilized interest rates for long-term loans. Farmer Mac also participated in the capital market to guarantee a consistent flow of money from Wall Street to rural landowners.

Modern Options for Rural Landowners

Rural land financing has changed greatly over time, and Farm Plus Financial helps make navigating rural property loans simpler than ever before. We offer flexible options and competitive rates for rural land financing so you can worry less about navigating confusing lending requirements and focus more on making the most of your property. Learn more about our rural property loans when you visit Farm Plus Financial today.

How Rural Land Financing Has Changed Over Time