Ag lending represents bright spot in the crisis
WASHINGTON — Farm loans are harder to find than a year ago but still easier to obtain than other kinds of loans, economists told a congressional panel Wednesday.
While many agricultural lenders are tightening lending standards and boosting collateral requirements, credit remains adequate and probably will remain so as long as the global financial crisis does not worsen, witnesses told a House Agriculture subcommittee.
Wednesday's testimony by the U.S. Department of Agriculture's chief economist, Joseph Glauber, and others provided a bright spot in an otherwise dim picture for many types of agriculture, notably the dairy industry. Banks with heavy concentrations of farm loans escaped some of the meltdown experienced by larger commercial banks, in part because of strong farm commodity prices and steady real estate values in rural areas, experts said.
"Concerns about the availability and cost of funds and the creditworthiness of borrowers remain," said Jason R. Henderson, vice president of the Omaha branch of the Federal Reserve Bank of Kansas City. "However, the robust performance of agricultural banks and relative strength in the rural economy should support rural lending."
Mr. Henderson also pointed to agricultural banks' growing deposits as evidence that lending should hold up in 2009. The government defines agricultural banks as those with at least 25 percent of their loan portfolio devoted to farm-related loans.
The optimistic outlook for agricultural lending overall, however, contrasts with gloomier observations in the dairy industry, where farmers have been told to expect to lose money on milk through 2009 and perhaps 2010 as well. And even the optimistic forecasters said Wednesday that loans could become more scarce if lending standards tighten or real estate loses value, depriving farmers of a common form of collateral.
In addition, farmers' debts have been relatively low compared to the value of assets, thanks to high real estate values. Total farm debt equals about 9.1 percent of total assets, compared to more than 20 percent during the mid-1980s, but could rise as the recession continues, Mr. Glauber said.
"There's no question that debt has been rising," Mr. Glauber said.
Dairy producers face the possibility of being refused loan guarantees by the USDA if they cannot show they are likely to at least break even this year, a requirement for loans and loan guarantees, the U.S. Farm Service Agency in Syracuse has reported. The department's loan guarantees shrunk in 2008, although direct lending increased, Mr. Henderson told the subcommittee.
And while the Farm Credit System reported expanded farm real estate mortgages in 2008, and First Pioneer Farm Credit reports solid business in the north country, some of the larger commercial banks with offices in the region have pulled back on farm lending over the years.
One of the commercial banks that remains a significant source of farm loans in Northern New York, Community Bank N.A., increased its agricultural loans by about $10 million in 2008, to $66 million, or 6.3 percent of the banks' total commercial loan portfolio, a spokeswoman said.
Wednesday's hearing centered on the state of the farm economy, and experts gave a mixed prognosis for the industry. Milk prices, at lows last seen in the 1970s, will recover beginning in the second half of this year as more cows are taken out of production, Mr. Glauber said. Milk production nationwide is likely to slide by 0.8 percent this year, he said.
The recovery of the dairy industry, as well as other agricultural businesses, depends in part on world trade, experts said. Trade, in turn, depends on the health of foreign countries' financial systems, which have been ailing.
"The financial situation is quite difficult, I think, for countries worldwide," Mr. Glauber said. Still, he said, U.S. farm exports should grow in the next year.
Farmers also are watching the cost of feed, fertilizer and fuel, which Mr. Glauber predicted will all be lower this year than in 2008. That could help dairy farmers, who buy much of the feed given to cows.
