Production Credit Association - PCA

DEFINITION of 'Production Credit Association - PCA'

A federal instrumentality created by Congress through the Farm Credit Act of 1933 to provide short- and intermediate-term credit to farmers, ranchers and rural residents. The credit was extended so the recipients could purchase housing, perform marketing activities, purchase farm equipment and livestock and operate farm-related businesses. At the time, credit was either not available or was available only at prohibitively high interest rates because of the Great Depression. Farmland and commodities weren't worth as much, and banks already had lots of agricultural loans on their books.

Production credit associations can make or guarantee loans whose terms do not exceed seven, 10 or 15 years, depending on the funding bank's policies. The loan must be amortized over 15 or fewer years, and any refinancing may not extend the loan term further than 15 years from the original loan date.

BREAKING DOWN 'Production Credit Association - PCA'

The Farm Credit System, a government-sponsored enterprise established in 1916, provides financing and financial services related to agriculture and includes a number of credit organizations. In addition to production credit associations, these include agricultural credit associations, agricultural credit banks, banks for cooperatives, farm credit banks, federal intermediate credit banks, federal land bank associations and federal land credit associations. PCAs get their funding from farm credit banks and own their loan assets. The Farm Credit System raises money by selling debt securities to investors in the U.S. and abroad.