October 23, 2008

 

US farms may weather financial crisis better than other sectors

 
 
Although the US financial crisis may make loans harder to come by, US farmers are likely to weather the ongoing credit crunch better than other sectors, economists said.
 
Farmers anticipating high prices for their grains as has been case for the past few seasons are now having to contend with lower soy and corn prices. Soy dropped from a summer-high of US$16 while corn dropped from over US$7 to the current US$4.
 
This is despite the high costs of fertiliser, which has nearly doubled and high fuel costs, when farmers started their planting. This is further compounded by a sharp rise in seed and equipment prices.
 
Many farmers say they expect to be able to borrow money in the months ahead but would be cautious in working out how much they could afford to pay back, especially since grain prices are unlikely to return to their previous highs last season. Some are also buying lesser fertilisers or holding back purchases of new equipment.
 
Already, banks are requiring more collateral and higher interest rates from crop farmers, ranchers and meat processors, economists said.

Some are already calling it the toughest lending environment farmers have faced in about 25 years.

 
Still, farmers are going to come out of the current crisis stronger than the rest through the safety net provided by the farm bill programmes and crop and revenue insurance coverage.
 
Moreover, the industry's traditional lenders the independent commercial banks, were less affected than the country's largest investment banks and commercial banks, which bore the brunt of mortgage-related losses.
 
Federal assistance programmes put in place during the country's farm crisis of 1919 are still active, which should help see farmers through the credit crunch.
 
Many farmers also rely on Farm Credit Services, a lending cooperative that specializes in agricultural loans and should be somewhat insulated from the troubles on Wall Street, economists said. The USDA also disburses loans to farmers. For example, last year, the agency lent US$3.3 billion to about 26,000 farmers.
 
The Farm Bill would also give the industry special access to government-backed loans that are nearly fully guaranteed by the USDA's Farm Service Agency.
 
Crops also have federal crop insurance to protect farmers from failed harvests. 
 
Agriculture economists say farmers will simply need to adjust through increasing operational efficiencies, selling assets to raise cash or purchasing crop insurance to guard themselves against insolvencies.