Temporary Suspension of Direct and Guaranteed Farm Ownership and Farm Operating Loan Programs To Construct Specialized Facilities Used for Hog Production

Background

A specialized facility, hereafter referred to as a facility, is defined for the purposes of this temporary suspension as any building or enclosure and related equipment specifically designed to house, raise or feed hogs of any size, age, or market class. This action is necessary for USDA to adopt consistent policies to address the economic crisis in the pork industry. The Secretary of Agriculture has taken a variety of administrative actions to mitigate the current over-supply and historic low price conditions being experienced by hog producers. It is inconsistent with USDA policies for FSA to continue to finance construction of additional production facilities through direct loans and loan guarantees while other agencies within USDA expend resources to ameliorate over-supply conditions. FSA is concerned that during this period of low prices, the availability of its credit programs may facilitate additional production capacity that will prolong the current hog price depression. Additional capacity is also likely to damage the prospects for long- term financial recovery in the industry. These results would be damaging to individual hog producers and the public interest. Without the moratorium, the effect will be increased Federal outlays as the time necessary for USDA amelioration of over-supply will be extended. Producers will experience continued severe financial stress and delayed financial recovery. Further, USDA is concerned that continued financial stress on hog producers may force and accelerate concentration of the production, processing, and marketing of hogs into fewer hands. Such a concentrated structure would result in a significant reduction in the diversity of agricultural production and in the independence of family farmers across the country. In many cases, a producer would be unable to obtain the required capital for new facilities were it not for FSA's direct and guaranteed farm ownership and farm operating loan programs. Loan guarantees limit the loss risk to commercial lenders up to 95 percent, while qualified applicants may receive 100 percent financing through the direct loan program. The current price levels for hogs ready for slaughter will not generate adequate cash flow to support new loans. However, through production contracts or other means, some loan applicants may be able to meet loan repayment requirements and qualify for credit for the construction of new facilities. The Agency is

particularly mindful that the availability of an FSA loan guarantee may induce commercial lenders to finance facilities that they would otherwise not consider viable under current market conditions. Direct and guaranteed loan applications that were received by FSA county offices on or before the date of this notice will be processed through to completion and will not be affected by this temporary suspension. Loan applications for purchase, refinancing, maintenance or repair of facilities currently in production will continue to be processed, as will loan requests for operating loans for annual production purposes. In all other cases, applications will only be processed when the government's interest will be imperiled. All other loan applications submitted to FSA county offices during the temporary suspension will be accepted but held in abeyance until the suspension is lifted. This temporary moratorium will be lifted upon determination by the Secretary that economic and financial conditions have improved to the extent that USDA action is no longer necessary to alleviate financial stress on hog producers.

Signed in Washington, DC, on January 4, 1999. Parks Shackelford, Acting Administrator, Farm Service Agency. [FR Doc. 99-377 Filed 1-7-99; 8:45 am] BILLING CODE 3410-05-P