October 13, 2008


Credit crunch no impact yet on US beef industry



The credit crunch that brought the US financial markets to their knees this week seems so far to be missing the beef industry.


Cattle producers and feedlot operators can obtain the operating loans they need without much trouble, banking officials, economists and feedlot managers said. In some cases, there may be more equity documentation or risk management required, but money can usually be found.


That's because most producers, large feedlots included, deal with local banks or institutions that are heavily agriculture-oriented. The balance sheets at these facilities are strong, and there is money to lend.


"I'm not aware of anyone in agriculture that has had trouble getting credit," said Gregg Doud, economist for the National Cattlemen's Beef Association.


"The heartland learned its lesson in the banking crisis of the late 70s and early 80s," Doud said. Getting them overextended with bad loans is no longer something they do, he said.


Jason Henderson, economist at the Federal Reserve Bank of Kansas City, said the credit crunch was affecting agriculture in general "only marginally."


"The banks have funds and are making loans, but they are asking more questions," he said. The agriculture industry has made money over the last several years, so there is no shortage of cash.


Farm income in general is expected to be up 10 percent this year, and banks are interested in lending to such a strong business sector, Henderson said.


Some of the more marginal operators may be required to document more equity than in the past before getting their requested loan amount, he said.


Other analysts and traders said some producers and feedlot operators may have to document more risk management measures than they've been used to. This may be particularly true if a feedlot operator or cattle producer has had marginal returns because of a lack of hedging, they said.


One southwest Kansas feedlot manager said he hadn't even received a telephone call about the credit crisis from his bank. He deals with a local community bank, which Henderson and Doud said are in strong financial shape.


The feedlot manager doesn't expect any problems with his usual line of credit when it comes time to negotiate a new operating loan.


Doud said many community banks are careful about their lending practices. Many were spin-offs from larger banks in the late 1970s and early 1980s because of weaker financial positions at the time.


In the ensuing years, those community banks have invested in their local agricultural communities, and their profits have been aided by strong income by farmers and ranchers over the last few years.


But that doesn't mean there are no worries in the country, economists and analysts said. Bankers are aware of risks from the economy, they said.


While there has been little effect from the credit crunch so far, "it probably will at some point," said Kevin Good, market analyst at Cattle-Fax, a private market advisory service. Many producers simply may not have run into a credit roadblock yet because they haven't tried to borrow, he said.


Cow and calf producers usually negotiate their loans annually, and many may not yet be at their usual negotiating window, Good said.


One advantage for obtaining credit is the variety of sources for operating loans, including local banks, the Farm Credit Service and some large agricultural lending institutions, Good said.


The variety should give more producers the chance to find the operating funds they need, the analysts and economists said.

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