(Ed.: Updates with citations, details and background. With AP Photos.)
Wichita, Kan. – U.S. farmers squandered all available federal farm loan money last fiscal year to weather one of the worst farm downturns in years, but no one who qualifies for a farm loan will be turned down for the next four months under an unusual provision dated this month Congress.
According to US Senator Jerry Moran, a Republican from Kansas who chairs a panel on farm appropriations, the budget patch gives the Department of Agriculture’s Farm Service Agency the authority to meet increases in credit demand by using future appropriations. There’s no limit to how much the USDA can lend through April 28 — a victory for farm groups who have been pressing Washington for a solution to avert a looming credit crunch.
Corn and wheat prices have already pushed farmers to the limit, and beef prices are hurting ranchers. They turned to lenders, resulting in the FSA missing $137 million in needed direct and guaranteed borrowing funds in the fiscal year ended Sept. 30.
As the money ran out, approved loans were funded in the current fiscal year, piling up demand for credit and raising the specter that the FSA would run out of money again before spring – when most farmers need it most.
“If you’re trying to grow a crop, feed a family and pay the bills, that’s a problem,” Moran said. “This is one of the most difficult times in farming in a long time.”
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Business loans for 2016 come due at a time of widespread recession. Farmers in Georgia, the Carolinas and Alabama have been hit twice by drought and flooding. Midwestern states are suffering from a flood in global grain markets that has sharply reduced crop prices, and cotton growers in Georgia and Texas are also suffering from the low prices. Consumer demand for milk is declining. Livestock prices fall.
Not that many people are able to pay off their 2016 business loans, and the next 60 to 90 days will tell, said Steve Apodaca, vice president of the American Bankers Association’s Center for Agricultural and Rural Banking, based in Washington, DC.
Most borrowers will be able to sustain themselves for another year, and bankers will be able to help restructure their loans and back commercial loans with federal guarantees, Apodaca said. He doesn’t expect a repeat of the agricultural crisis of the 1980s, when land values fell and interest rates were high.
Matt Ubell and his two siblings took out an FSA loan this month to buy their parents’ cattle and grain farm in Wheaton, Kansas, but he says the agribusiness “scared us to death”. Her balance sheet was just above breakeven to qualify for the loan.
“We’re kind of starting fresh. We bought the farm, we bought the equipment,” Ubell said. “… We’re pretty heavily in debt right now.”
The 34-year-old farmer and his wife put in many hours to make ends meet for their four children. His wife is a cook and nursing assistant. He works at a lumberyard and supplies liquid supplementary feed for cattle.
One measure of agribusiness is equity – the amount of debt compared to assets such as land and machinery. The USDA’s Economic Research Service forecast last month that US farm capital would fall 3.1% to $2.47 trillion in 2016 – the second straight year of declines. Agricultural debt is expected to increase 5.2 percent in 2016 to $375.4 billion.
With commodity prices so low, Russell Boening said he’s doing everything he can to avoid borrowing more money than he absolutely needs to run his 7,500-acre family farm in South Texas because “it just keeps putting you behind.” This includes delaying the purchase of equipment.
The 57-year-old has been farming for 35 years, raising hundreds of dairy and beef cattle and growing hay, corn, cotton, wheat and watermelon to diversify his income. Texas Farm Bureau President Boening also knows he’s in a better position than younger farmers like Ubell.
“We’ve been here long enough,” he said. “We have a good relationship with the lender, so we’ve built equity and we’re in a better position than someone who’s been self-employed in the last 10 years.”
This year’s bountiful yields and low lending rates helped many growers. But many commercial lenders are now demanding government guarantees from farmers whose operations are under stress that any money borrowed for next year’s crop will be repaid.
“When a farmer goes under, it affects the rural community,” Apodaca said. “He no longer buys seeds, he no longer buys equipment. His family no longer goes to the local high street to buy goods and services.”