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Farmers' new trouble at the ranch: tighter credit
http://seattlepi.nwsource.com/business/1310ap_meltdown_agriculture.html

By BETSY BLANEY
AP AGRICULTURE WRITER

LUBBOCK, Texas -- There is new trouble at the ranch. The worsening financial 
crisis is making it harder and more expensive for farmers and cattlemen to 
borrow money to pay for feed, land and salaries. While the credit squeeze on 
the agricultural sector is buffered somewhat by subsidies and other federal 
assistance, the timing is nonetheless bad: the costs of fertilizer, fuel, 
seed and equipment have all risen sharply in recent years, and a global 
recession is on the horizon.

"Other than the sky is falling, I'm OK, I guess," said West Texas rancher 
John Welch, who manages 10,000 head of cattle.

With confidence dwindling in borrowers' ability to repay loans, banks are 
requiring more collateral and higher interest rates from crop farmers, 
ranchers and meat processors, said Carl Anderson, an agricultural economist 
at Texas A&M University. "The bankers are turning conservative."

This is the toughest lending environment farmers have faced in about 25 
years. At the same time, the agricultural sector has historically done better 
than other industries during a recession because of the local lenders' 
familiarity with the area, the safety net provided through farm bill programs 
and producers having crop and revenue insurance coverage.

In response to the lending crunch, farmers and ranchers are expected to rein 
in costs wherever they can - whether it means using less fertilizer, 
restructuring debt or putting off new equipment purchases.

While the weakening global economy is putting downward pressure on fuel 
prices, it is also depressing the value of grains and livestock - and that 
will eat into farmers' and ranchers' pocketbooks. The upside for consumers is 
that food prices are likely to come down.

Rancher Jay O'Brien of Amarillo, Texas, said he and others like him are 
bracing for emotional discussions with bankers on the assumption that it will 
be much more expensive to borrow for 2009 than it was a year earlier. Some 
cattle producers already are having difficulty getting loans large enough to 
make deposits at feed yards.

"The loans are probably twice (the amount of) what they were a year ago, or 
two years ago," said Monty Whipple, who grows corn and soybeans near Utica, 
about 90 miles southwest of Chicago and relies on a revolving line of credit 
to pay for things like seed and chemicals.

Lane Broadbent, a livestock analyst at KIS Futures in Oklahoma City, said 
some bankers are already reluctant to finance cattle, which have been a 
money-losing business for many ranchers in recent years because of higher 
feed costs and drought.

"It's frustrating for these cattle guys to not to be able to borrow as much 
money as they need," Broadbent said.

That said, the agricultural sector won't be frozen out of credit markets 
entirely. For starters, the industry's traditional lenders - independent 
commercial banks - are on more solid financial footing than the country's 
largest investment banks and commercial banks, which have suffered the most 
in recent months from mortgage-related losses.

Moreover, federal assistance programs put in place in response to the 
country's farm crisis of 1919 are still active, helping the industry weather 
the current crisis.

Provisions in the Farm Bill, portions of which grew out of the Agricultural 
Adjustment Act of 1933, give the industry special access to government-backed 
loans that are nearly fully guaranteed by the U.S. Department of 
Agriculture's Farm Service Agency.

Many farmers rely on Farm Credit Services, a lending cooperative that 
specializes in agricultural loans and should be somewhat insulated from the 
troubles on Wall Street, according to Iowa State University agricultural 
economist Bruce Babcock. Those who can't get loans privately borrow directly 
from the USDA agency, which last year lent $3.3 billion to about 26,000 
farmers.

Jimmy Dodson of Robstown, Texas, a director of Farm Credit Bank of Texas, 
said the cooperative lender he works for hasn't felt any direct effect yet, 
but added: "If it's not dealt with soon, it'll be felt far from Wall Street."

Gary Niemeyer, who grows corn and soybeans in Auburn, Ill., said U.S. farmers 
are in a better position to insulate themselves from a credit crisis than 
they would have been a generation ago, mainly because they've learned to keep 
their debt levels in check.

Farmers enjoyed high commodity prices in the late 1970s, he recalled, and 
many, including himself, took on debt to buy land to expansion. They paid a 
heavy price when commodity prices and land values declined just a few years 
later, during the farm crisis of the early '80s

"A lot of people lost a lot of money in that timeframe and went out of 
business," said the 60-year-old Niemeyer. "There's a lot of them that have 
that memory and don't want to go there."

Everyone from crop farmers to livestock producers will be paying more for 
money they borrow on top of production costs which have been climbing in the 
past few years.

"I would say that everybody's pretty cautiously concerned," said Don 
Langston, a longtime cotton producer in Texas, the nation's leading producer 
of the fluffy fiber and the nation's No. 2 agricultural state.

Agriculture economists say farmers will simply need to adjust, whether that 
means looking for operational efficiencies, selling assets to raise cash or 
purchasing crop insurance to make sure they can repay loans.

There is a bright spot in all this for meat eaters, economists said. An 
anticipated decline in demand from overseas means there should be plenty of 
beef, at reasonable prices, for U.S. consumers.