A worker carries a bucket of grapes during this year's harvest in this September file photo.

BETSY BLANEY

LUBBOCK, Texas

There’s new trouble on the farm.

The worsening financial crisis is making it harder and more expensive for farmers and cattlemen to borrow money to pay for feed, land and salaries.

While the credit squeeze on the agricultural sector is buffered somewhat by subsidies, other federal assistance and the relative health of many agricultural lenders, the timing is nonetheless bad. The costs of fertilizer, fuel, seed and equipment all have risen sharply in recent years, and a global recession is on the horizon.

Many farmers say they expect to be able to borrow money in the months ahead, but will take a hard look at what they can comfortably pay back.

“The amount of money we’re required to borrow is probably twice what it was a year ago,” said Monty Whipple, who grows corn and soybeans near Utica, Ill., about 90 miles southwest of Chicago. “We’ll take a close look at our balance sheet and make sure we can afford it.”

With confidence dwindling in borrowers’ ability to repay loans, some banks are requiring more collateral and higher interest rates from crop farmers, ranchers and meat processors, said Carl Anderson, an agricultural economist at Texas A&M University. “The bankers are turning conservative.”

This is the toughest lending environment farmers have faced in about 25 years. At the same time, the agricultural sector has historically done better than other industries during a recession because of the local lenders’ familiarity with the area, the safety net provided through farm bill programs and crop and revenue insurance coverage.

In response to the lending crunch, farmers and ranchers are expected to rein in costs wherever they can – whether it means using less fertilizer, restructuring debt or putting off purchases of new equipment or the farmer’s most important asset: land.

“Let’s say the neighbor’s 40 (acres) pops open for sale – I’m going to have to think long and hard until this economic crisis turns around,” said Southern Illinois farmer Rolland Vandeveer, who grows corn and soybeans near Salem, about 80 miles east of St. Louis.

While the weakening global economy is helping ease fuel prices, it is also depressing the value of grains and livestock – and that will eat into farmers’ and ranchers’ pocketbooks. The upside for consumers is that food prices are likely to come down.

Rancher Jay O’Brien of Amarillo, Texas, said he and others like him are bracing for emotional discussions with bankers on the assumption that it will be much more expensive to borrow for 2009 than it was a year earlier.

The agricultural sector, though, is hardly expected to be frozen out of credit markets.

For starters, the industry’s traditional lenders – independent commercial banks – are on more solid financial footing than the country’s largest investment banks and commercial banks, which have suffered the most from mortgage-related losses.

What’s more, federal assistance programs put in place during the country’s farm crisis of 1919 are still active, helping the industry weather the current crisis.

Provisions in the Farm Bill, portions of which grew out of the Agricultural Adjustment Act of 1933, give the industry special access to government-backed loans that are nearly fully guaranteed by the U.S. Department of Agriculture’s Farm Service Agency.

“Plus they have federal crop insurance that basically makes them even lower-risk,” Iowa State University agricultural economist Bruce Babcock said.

St. Louis-based Monsanto Co., which sells seeds and the herbicides and other chemicals corn and soybean farmers rely on to grow their crops, expects farmers to be able to borrow with relative ease into next year.

Even as the country wrestled with the credit-market fallout last week, Monsanto Chief Financial Officer Terry Crews told analysts the company had just finished an encouraging round of talks with ag lenders.

“As a normal course of business, they are already renewing and increasing credit lines for their customers so that the purchases for this season can begin,” Crews said.

Many farmers rely on Farm Credit Services, a lending cooperative that specializes in agricultural loans and should be somewhat insulated from the troubles on Wall Street, according to Babcock. Those who can’t get loans privately borrow directly from the USDA agency, which last year lent $3.3 billion to about 26,000 farmers.

Everyone from crop farmers to livestock producers will pay more for money they borrow on top of production costs that have been climbing in the past few years.

“I would say that everybody’s pretty cautiously concerned,” said Don Langston, a longtime cotton producer in Texas.

Agriculture economists say farmers will simply need to adjust, whether that means looking for operational efficiencies, selling assets to raise cash or purchasing crop insurance to make sure they can repay loans.

Gary Niemeyer, who grows corn and soybeans in Auburn, Ill., said U.S. farmers are in a better position to insulate themselves from a credit crisis than they would have been a generation ago because they’ve learned to keep their debt levels in check.

Farmers enjoyed high commodity prices in the late 1970s, he recalled, and many, including him, bought land for expansion. They paid a heavy price when commodity prices and land values declined just a few years later, during the farm crisis of the early ’80s.

“A lot of people lost a lot of money in that timeframe and went out of business,” said Niemeyer, 60. “There’s a lot of them that have that memory and don’t want to go there.”

Associated Press Writer David Mercer in Champaign, Ill., and Christopher Leonard in St. Louis contributed to this report.

Previous articleHollister firefighter on GFD meets governor near blazes
Next article‘Baler harriers trump Alisal in final meet
A staff member wrote, edited or posted this article, which may include information provided by one or more third parties.

LEAVE A REPLY

Please enter your comment!
Please enter your name here