Ag Credit Market Not Immune To Economic Woes

Bankers and members of the Farm Credit System told a House Agriculture Committee that the problems of big banks have filtered down to an industry whose borrowers, especially dairy, hog and poultry producers, are facing tight margins, even losses, Agriculture Online reports. The leading indicator of stress could be the USDA Farm Service Agency (FSA), which makes loans to farmers unable to qualify for credit elsewhere.

As of May 30, demand for FSA direct operating loans was up by 81% and direct ownership loans was up 132%. FSA also guarantees bank and Farm Credit System loans and those guaranteed loans were up by almost a third. The Farm Credit System’s (FCS) borrowers still have strong balance sheets, the committee was told, but it, too has been affected. About 10% of FCS institutions have seen their financial soundness ratings from the regulator, the Farm Credit Administration (FCA), drop. But according to FCA Chairman Leland Strom, they represent just 3% of loan volume.

Bob Frazee, President of Mid-Atlantic Farm Credit based in Westminster, MD, agreed that the Farm Credit System remains sound, with most borrowers still having strong balance sheets. But some borrowers in his district, especially broiler producers and dairy farmers, have suffered losses. Because Farm Credit secures funds for lending by selling bonds, it has been affected by the nation’s banking crisis. The System has not been able to sell bonds with more than five-year terms since the banking crisis of late last year.