CHICAGO Conditions in key U.S. farming regions, which have outperformed the economy during the recession, are deteriorating amid increasing credit problems and contracting business activity, according to a commercial credit analysis.
In a report released on Monday at the Reuters Food and Agriculture Summit in Chicago, commercial credit consultant PayNet Inc said all U.S. farm sectors saw a 51 percent increase in asset repossession rates from 2005 to 2009 and had loan delinquencies of 1.54 percent at the end of 2009.
Business expansion for farms appears to be entering a downward cycle while the broader commercial economy is recovering, according to the PayNet report.
The Corn Belt, buoyed by strong demand from livestock and energy sectors, continues to show higher credit quality than all other geographic regions making up the farm economy. But that strength is waning as the overall U.S. economic downturn persists.
"There has been this very pronounced shift," said PayNet President William Phelan. "There are the beginnings of stress developing in the corn belt."
Similarly, the Central Plains, while still a relatively healthy region, is showing signs of stress, according to PayNet.
In the Corn Belt -- seen as Iowa, Illinois, Missouri, Ohio, Indiana, Minnesota and Wisconsin -- moderate loan delinquency rose 25 basis points from 0.5 percent in the third quarter of 2008 to 0.75 percent by the fourth quarter of 2009.
Lender repossessions of assets climbed from 0.23 percent of all loans in 2005 to 0.41 percent by the end of 2009, a 71 percent increase in the repossession rate. Repossession rates for the rest of the farm economy were 1 percent in 2009.
Business expansion by Corn Belt farmers appears to have peaked in the fourth quarter of 2008, and is now shrinking. Corn belt farmers were borrowing 5 percent less in the fourth quarter of 2009 than they did at the peak in 2008.
PayNet said credit conditions for Corn Belt farmers reached a cyclical peak in 2008 and since then all major indicators have deteriorated, with further deterioration likely.
Phelan pointed out that moderate loan delinquency for all commercial credit reached 4.39 percent at the end of 2009, showing the Corn Belt remains stronger in that regard than any other geographic region or industry sector of the U.S. economy.
Troubling signs are also on the rise in the Central Plains, which includes the top wheat-growing and livestock states of Kansas, Nebraska, Oklahoma and Texas, according to PayNet.
Moderate loan delinquency in the region hit 1.37 percent by the end of 2009, up from 1 percent in 2006. Repossessions of farm assets on the Plains increased 29 percent in 2009 over 2005 levels.
Borrowings by Plains farmers are down, falling 19 percent after hitting a peak in 2007. PayNet said lower government supports and diminished consumer consumption are partly to blame.
Livestock farmers were showing increasing financial troubles due to higher feed costs, and weakened domestic and international demand, with pork producers and dairy farmers under particular stress, PayNet said.
(Reporting by Carey Gillam, editing by Matthew Lewis)