With U.S. agriculture in the third year of a commodity-price slump, bankers are toughening their rules for lending money to growers, says Reuters, which quoted a Farm Credit Systems official as calling for belt-tightening by farmers. “You need to accept this new normal,” said Jim Knuth, FCS senior vice president. “Cash is king.”
There is no tally of how many farmers have been denied a short-term operating loan, “but bankers are now saying no to clients they may have backed during the recent boom times,” reports Reuters.
Some banks are requiring farmers to make a larger down payment on land and equipment, or suggesting they pledge their crops as collateral on USDA-backed loans that carry favorable interest rates. “The squeeze comes as most farmland rent payments — which can run into millions of dollars — are due March 1. Seasonal payment deadlines also loom for seeds, chemicals and equipment,” said Reuters.
While the sector is in generally strong shape, low crop and livestock prices are beginning to pull down land prices — land is a farmer’s chief asset — and contributing to an increase in debt-to-asset ratios. USDA forecasts farm income will stabilize this year after plummeting by a combined 31 percent in 2014 and 2015.