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Farm credit expected to slip further in coming months

Agriculture.com Staff 11/17/2008 @ 1:14pm

Credit conditions have been faltering in almost every corner of the U.S. economy lately, and now economists see that trend reaching into the farm sector more in the coming months.

Though the general trend has yet to hit ag with full force just yet, 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, released late last week. The writing's ln the wall, but it's yet to fully translate into a slash in available credit for the farm just yet, according to Omaha Fed branch executive Jason Henderson.

"Farm credit conditions remained healthy in the third quarter, but are expected to weaken in the coming months," he says. "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."

In addition to the fact loan repayments, renewals and extensions held steady, one bright side to the latest data provided by ag lenders in the Kansas City Fed district, comprising Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri, is the number of lenders who said they've refused loans.

"Less than two percent of survey participants reported refusing a loan due to a shortage of funds and there was no change in the number of loans referred to correspondent banks or non-bank credit agencies," Henderson says.

Tightening credit is on the horizon for many of those lenders, though, as Henderson adds that 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.

"Farm loan demand was projected to rise, further reducing funds availability," Henderson says. "Survey respondents anticipated additional tightening in credit standards and slightly more referrals to correspondent banks and non-bank credit agencies in the fourth quarter."

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Credit conditions have been faltering in almost every corner of the U.S. economy lately, and now economists see that trend reaching into the farm sector more in the coming months.

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