I bet this headline will catch the attention of readers from the beltway of Washington, D.C. to the depths of rural America. This is the word on the street circulating in conversations with lenders and producers in agriculture and rural America on my recent Road Warrior travels. While these rumors may be false, perception becomes reality in the boardrooms and loan committees of our lending institutions, which will ripple to producers.
Yes, banks, farm credit and other financial institutions are tightening agricultural credit extension. Credit is still available, but information and collateral requirements from borrowers are increasing and being scrutinized.
For the most part, lending examinations of institutions loaning to agriculture are intensifying, particularly as bank failures in rural areas increase. The fallout from one institution with large ag credits under the eye of examiners was the shot heard around the country in lending circles.
Today, much of the U.S. farm debt is in the hands of the 300,000 commercial producers that generate 75-80% of the revenue. The financial difficulty faced both by lenders and producers is not the result of financing based upon inflated land prices. As revenues have decreased and input costs have risen, margins have been squeezed.
Financial leverage in the protein and livestock sector is the battlefront to watch this fall and winter. This could eventually impact the crop sector, which then could become the next big crisis!
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected].