Billions may be needed soon to aid US farm credit program. Any decision on bailout plan for Farm Credit System likely to be felt far outside barnyard

The low crop prices and falling land values that have made life miserable for many United States farmers for some time now are causing problems for the nation's farm lenders as well. The effort to find a solution to the agricultural credit problem will touch Americans who never get closer to a farm than opening a package of Wonder Bread, experts say.

The solution is likely to affect the size of the federal deficit, as well as the financial health of banks, pension funds, and insurance companies.

The farm-credit problem is the spotlight because the largest of the farm lenders, the Farm Credit System, now says it probably will need a federal bailout. Experts say the cost could exceed the $4.5 billion the federal government spent last year to rescue Continental Illinois Corporation in Chicago.

The little-known Farm Credit System is owned and controlled by farmers and farm cooperatives and holds $74 billion in farm debt. That is about one-third of the $213 billion in loans outstanding to US farmers. The Farm Credit System's 37 main banks make long-term real estate loans, short- and intermediate-term operating loans, and loans to farm cooperatives.

The system ``today is solvent,'' but it will need federal aid in 18 to 24 months ``if nothing changes'' in the outlook for the farm economy, says Donald Wilkinson, governor of the Farm Credit Administration, the federal agency that regulates the system. The cost of such aid would be ``multibillions [but] I can't pinpoint'' the cost now, he said, since it would depend on what form of aid is chosen.

Congress should prepare ``a contingency plan'' for aid, he said at a breakfast with reporters. The House Agriculture Subcommittee on Conservation, Credit, and Rural Development is scheduled to begin hearings on the problem today.

With crop prices low, more and more farmers are falling behind on their loan payments. And prices for farm land, the security on those loans, continues to decline in many areas of the country.

As a result, banks often can not recoup lost loan funds by foreclosing on the loan and selling the land.

Of the Farm Credit System's $74 billion in outstanding loans, some $11 billion, or 15 percent, are uncollectible. The problem is expected to grow worse with bumper crops, and thus low crop prices, being forecast.

The problem is not confined to the Farm Credit System, Mr. Wilkinson notes. It is ``a universal agricultural credit problem, not exclusively'' a Farm Credit System problem.

And a solution should involve aid to commericial banks and the user-owned Farm Credit System, he says. ``I have advocated that this not be [solely] a Farm Credit assistance package,'' Wilkinson said.

One approach that would help the system and commerical banks would be ``warehousing'' farm loans.

In such an approach the government would assume the farm debts held by commercial banks and the Farm Credit System. Then the loans would be packaged with government guarantees and resold. Such a move ``could reduce the cost'' of a solution, Wilkinson said.

Other options include an infusion of capital into the Farm Credit System or increased farm price supports.

Any bailout of the Farm Credit System will have wide public impact. For one thing, the credit problems are expected to influence deliberations over how generous -- and expensive -- the 1985 farm bill should be. The current farm law expires Sept. 30, but neither the House nor Senate Agriculture Committee has finished work on a bill.

The farm bills are not expected to deal explicitly with the farm-credit problems, Wilkinson said.

But ``if the farm problem is not corrected, you are not going to find the credit institutions able to survive,'' Wilkinson said. We are ``facing a major restructuring of rural America,'' he noted.

Farm legislation should ``slow down this downsizing effort . . . to spread it out over a larger number of years,'' he said. Otherwise the impact of shrinking American agriculture ``will spread beyond the rural community,'' he said.

In addition to affecting deliberations on the pending farm bills, a government solution to the farm credit problem will involve costs of its own, which also will add to the federal deficit.

Higher deficits, in turn, would lead to added pressure on interest rates or on legislators to boost taxes or cut other spending.

Failing to solve the Farm Credit System's problems also would involve costs. The system raises the money it lends by selling bonds to banks, insurance companies, and pension funds.

Until recently, investors viewed Farm Credit System securities as almost as safe as US Treasury bills which, unlike the Farm Credit obligations, carry a government quarantee.

Thus, with $70 billion of bonds outstanding, the failure of the Farm Credit System could have wide effects in the nonfarm economy. A bailout to prevent such a failure will be accompanied by ``a significant restructuring'' of the Farm Credit System to trim the number of local offices, Mr. Wilkinson said.