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US farm credit standards seen tight in 2010
March 24, 2010 / 9:32 PM / in 8 years

US farm credit standards seen tight in 2010

* Lending risks keep credit conditions tight for US farms

* Profit outlook and lower debt to improve credit

* Livestock sector remains stressed

By Christine Stebbins

CHICAGO, March 24 (Reuters) - U.S. commercial banks are keeping credit standards elevated for farmers wanting loans to grow crops and raise livestock this year after loan repayment worsened in 2009 and delinquency rates rose, the Kansas City Federal Reserve said on Wednesday.

The government’s outlook for farm income to rebound in 2010 should improve farmers’ access to credit as the year progresses, the Fed said. The exception will be big livestock operations burdened with heavy debt after a disastrous 2009.

“Those facing the most difficulty in getting credit are livestock producers, whose thin profit margins and high debt levels are likely to continue in 2010,” economists Jason Henderson and Maria Akers said in Kansas City Fed’s latest newsletter.

Even though ag banks outperformed other commercial banks during the long recession, they still tightened credit standards in 2009 as volatility in agricultural markets like grains and hogs jumped and farm profits fell.

The livestock industry has been struggling since 2007 with high feed costs even as the recession hit consumer meat buying. Dairy, hog and cattle feeding businesses operated in the red most of 2009, as livestock prices stayed well below the cost of production.

“Losses are expected to narrow in 2010 as USDA projects livestock prices to rise amid stronger demand and shorter supplies,” the Fed said.

Even so, loan volumes for feeder cattle and dairy operations are forecast to decline further in 2010. In 2009, the total loan volumes made by commercial markets for feeder pigs, cattle and other livestock fell to $11.1 billion from $13.0 billion a year earlier.

The expected bright spot will be grain farming, which is expected to see another year of profits.

The USDA projects net farm income to increase 12 percent to $63 billion in 2010, after a decline in 2009, with prices of most major crops -- corn, soybeans, wheat and cotton expected to rise. Additionally, crop production costs are forecast to edge up slightly in 2010 after surging in recent years.

“As a result, crop profits are projected to remain historically high, but well below the record peaks in 2007 and 2008,” the Fed said.

Overall farm debt remains near historical lows as fewer farms have been using debt to finance operations since the 1980s farm crisis, the Fed says. Only 31 percent of farms reported using debt in 2007, compared to 60 percent in 1986.

“A farm rebound, spurred by a global economic recovery, could open credit flows and foster additional investments in U.S. agriculture,” the Fed said. (Editing by Rene Pastor)

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