PCA marks 70 years

of service to nation’s farm families

Born in the midst of the Great Depression, PCA has provided a needed source of competitively priced operating,

livestock and equipment credit and other financial services.

The Farm Credit System has become a true American success story, a story of vision and determination and commitment that has changed and supported agriculture and rural life for 86 years. One part of that Farm Credit System, local Production Credit Associations (PCAs), has been contributing to that success story for 70 years. But to understand its genesis and history, one must travel back even further – to the late 1800s.

Following the Civil War, the farm picture in America started to change. "Food began to become more plentiful. The big push westward was increasing the flood tide of farm products moving to eastern and foreign markets as more and more virgin prairie land was broken to the plow – spurred on by the availability of land for the claiming under the Homestead Act of 1862," wrote W. Gifford Hoag in his book, The Farm Credit System: A History of Financial Self-Help.

As land free for the settling disappeared, the beginnings of farm mechanization and accompanying specialization increased farmers’ needs for credit. But money for any kind of loans in most rural areas was scarce. Money, when it was available, was usually concentrated in the big cities, Hoag pointed out.

The banking panics of 1896 and 1907 heightened the cries for banking reform. "Farm leaders, farm politicians and the farm press naturally were in the forefront of the battle for banking reform," continued Hoag. "They wanted a system of credit that was especially adapted to the needs of farmers, rather than one that compelled them to use loans that were designed to meet the needs of other businesses."

In 1908, President Theodore Roosevelt appointed a Country Life Commission to investigate the needs of farmers and rural Americans. After holding hearings in 40 states, the Commission issued a comprehensive report, including recommendations for a rural free delivery system, increased educational efforts that were the forerunner of the Cooperative Extension Service, development of more cooperatives and, last but not least, formation of a cooperative agricultural credit system.

According to Hoag, political and popular support for a farm credit system built steadily, but a number of different structures were proposed. In 1912, President William Howard Taft asked his ambassadors in Europe to investigate farm credit systems there. "That same year, all three political parties – Republican, Democratic and Progressive – called for the establishment of a farm credit system," Hoag related.

It took an additional four years before Congress had sorted through the various proposals and passed the Farm Loan Act of 1916, which authorized the formation of 12 district Federal Land Banks and a network of affiliated local National Farm Loan Associations (later Federal Land Bank Associations) to make farm real estate loans. The system was to be started with government seed money, but the legislation called for that money to be repaid and eventual ownership to rest with the farmers who borrowed from the system. President Woodrow Wilson signed the Act on July 17, 1916.

The first district Federal Land Bank to be chartered in early 1917 was located in St. Louis and served Illinois, Arkansas and Missouri. In rapid succession, the other 11 district banks were chartered, and by November of that year farmers already had organized 1,839 local National Farm Loan Associations across the country. And another 1,985 were in the process of being organized, according to Hoag’s book.

However, one shortfall of the legislation was that it didn’t address the need for short-term operating credit. "The severe farm depression of the early 1920’s accented this absence … and the overall credit crisis was dramatized still further by a drying up of short-term credit in the country banks," William Stokes Jr. wrote in his book, Credit to Farmers, a history of the nation’s Production Credit Associations.

"In the last frantic hours of its existence, the 67th Congress passed a law known as ‘The Agricultural Credits Act of 1923’" which created 12 district Federal Intermediate Credit Banks in an attempt to close this credit gap, according to Stokes. "Many men had sponsored this legislation and guided to final passage. Among them there was enthusiasm; there was hope. But many others had doubts and concerns, and a few were openly opposed," he wrote.

"The ensuing 10 years confirmed in many respects the view of these doubters, cynics and opponents. For in spite of the promise of the tools provided by the law, the desperate needs of the American farmers for more credit and flexible credit tailored to the peculiarities of their business had not been satisfied," Stokes reported.

And then came the Great Depression. By the fall of 1932 when Governor Franklin Roosevelt won the Presidential election, the need to get credit to farmers and rural communities was a major national problem. "Farm prices had hit all-time lows. Farmers were in dire circumstances. Hundreds of thousands of farmers were finding it impossible to produce enough net income to pay their debts. They were either being foreclosed or were facing that possibility. A pall of despair and hopelessness hung over the whole country," Hoag wrote.

"Angry and threatening mobs of farmers at frequent tax and foreclosure sales were common occurrences. Banks were closing all over the country – especially in rural areas," Hoag described.

Completing the Farm Credit System

Roosevelt acted quickly, directing his then New York State Conservation Commissioner, Henry Morgenthau Jr., to Washington to begin to lay plans for meeting the farm problem. Morgenthau and W.I. Myers, professor of farm finance at Cornell University began to concentrate their attention on how to solve farmers’ financial problems. They met with farm leaders, members of Congress and officials in various government departments.

According to Hoag, Morgenthau and Myers developed a plan to (1) have the government give the Land Banks the necessary tools for them to tackle the tremendous emergency farm refinancing job that was so urgently needed, and (2) create a well-rounded complete cooperative credit system for agriculture by adding to the Federal Land Banks and the Federal Intermediate Credit Banks, new organizations to channel funds to farmers and provide a decentralized method of financing farmer cooperatives.

"As soon as President Roosevelt was sworn into office on March 3, 1933, he began to put the plans for providing loans to farmers into action," Hoag reported. "By May 12, 1933, Congress passed and the President signed the Emergency Farm Mortgage Act which gave the Federal Land Banks powerful weapons and plenty of ammunition to attack farmers’ emergency credit problems.

And by June 16 of that year, Congress had passed and the President had signed the Farm Credit Act of 1933. "It established the 12 Production Credit Corporations, whose job it was to capitalize and supervise and train local Production Credit Associations. It also established the 12 district Banks for Cooperatives and the Central Bank for Cooperatives," Hoag continued. The latter were to provide credit to the growing number of farmer cooperatives.

The first PCA organized in the nation was at Champaign, IL, on September 11, 1933. "Its first loan (and the first in the System) was made to Milton W. Warren at Mansfield, Illinois. Application was made October 2, 1933, and the loan closed October 10. The credit for $830.50 was used to purchase 30 head of 850 pound steers. The Association manager who supervised the making of this loan was Mervin Volle," Stokes outlined in his book.

By March 20, 1934, with the chartering of the Rifle Production Credit Association in Colorado, the entire nation was blanketed with active PCAs. And by the end of 1934, PCAs had made more than 135,000 loans to farm families.

Most PCAs have since been folded into today’s Farm Credit Services associations that combined their and the Federal Land Bank Associations’ functions under one roof. But as June 16, 2003 marked the 70th anniversary of PCAs, so too did that date mark a seven-decade heritage and commitment to serving the financial and risk management needs of America’s farm families.

Story by John Leatherbury