AgriBank, Associations and Farm Credit customer-owners are several years into navigating a more challenging business cycle. We remain in an "agriculture efficiency cycle," when many producers are having to reduce operating costs to better align with commodity prices. Lower prices for key District crops such as corn, soybeans and wheat have contributed to moderating farmland values and lower levels of net farm income.
Interest rates are on the rise, at least modestly, for the first time in a decade. Producers generally entered this cycle with strong financial positions as evidenced by low debt-to-equity positions that have moderated in the past few years but remain manageable. Additionally, most producers use various forms of risk management practices to reduce income volatility. Farm Credit was created to help producers through all conditions. Whatever economic cycles we face, we’re committed to keeping capital flowing to rural America through District Associations — capital that farmers, ranchers and other customers need to make their businesses successful — which means more jobs and economic growth, leading to more vibrant communities.
Farm Credit customer-owners will continue to face increasing risk, uncertainty and volatility. As we support District Associations in helping their customer-owners confront today's economic realities by making credit available at competitive rates, we will stay focused on our time-honored mission. This requires maintaining our strong financial foundation, enhancing our collaboration with District Associations and the entire Farm Credit System, and operating more efficiently.
A new administration and new Congress add to the uncertainty. Only time will tell what new leadership in Washington will bring to agriculture and economic policies. The AgriBank District Farm Credit Council and national Farm Credit Council monitor the political climate. They stand ready to help Farm Credit speak with a consistent voice on issues important for the System, rural communities and agriculture.
Transitions are also on the horizon within the Bank and District organizations. The Bank is undertaking a strategic transition that includes defining our long-term role and purpose in serving District Associations. The most significant change will be the likely formation of a new, independent service entity effective at the start of 2018. The service entity will help the Bank and participating District Associations develop and maintain long-term, cost-effective technology and business services. AgriBank and the District Associations that own the service entity will be making more than an investment in technology. We'll be entering into a long-term commitment to working with each other on behalf of Farm Credit customer-owners. This commitment will provide greater stability for technology and business services across the District and enable AgriBank to focus on its core funding role.
Several District Associations also are banding together for the long term through mergers that are on track to take effect in 2017. Upon approval by the Farm Credit Administration (FCA) and the Associations' shareholders, AgStar Financial Services, Badgerland Financial and 1st Farm Credit Services plan to merge in 2017 to create Compeer Financial. AgCountry FCS and United FCS plan to merge in 2017 under the AgCountry name. These Associations already have strong, extensive working relationships that provide a good foundation to join forces. AgriBank supports the combinations as a way for these Associations to increase member value, diversify risk and improve client service. If these two mergers occur, AgriBank will support 14 Farm Credit Associations that continue to serve 15 states in the heart of America’s production agriculture.