Report: Farm Credit Will Tighten In Months Ahead

Economists are bringing more bad news, but this time to the farming sector. Though the general downward trend has yet to hit ag with full force, conditions have begun to tighten, and that’s expected to continue well into 2009, according to the latest survey of ag lenders by the Federal Reserve Bank of Kansas City, Agriculture Online reports.

“Farm credit conditions remained healthy in the third quarter, but are expected to weaken in the coming months,” said Omaha Fed branch executive Jason Henderson. “Agricultural lenders reported tighter credit standards and reduced funds availability while demand for farm loans remained strong. The index of funds available for agricultural loans declined in the third quarter but remained slightly above year-ago levels.”

Loan repayments, renewals and extensions have held steady, one bright side to the latest data. Ag lenders in the Kansas City Fed district, comprising Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri said that less than 2% of survey participants reported refusing a loan due to a shortage of funds.

Henderson did say however that tightening credit is on the horizon for many of those lenders, as almost 20% of those responding to the latest survey said they have raised loan collateral requirements.

Looking ahead to the next few months, credit conditions will tighten amid increasing loan demand in the face of reduced availability of funds. Many lenders who responded to the Fed’s survey for the third quarter said rising crop input costs remain the driver of the credit-tightening and most don’t see current cost trends changing anytime in the near future. ❖