The U.S. agricultural credit lending industry will likely adopt tougher loan regulations and force more foreclosures in livestock and grain operations in 2010, says Danny Klinefelter, Texas A&M Extension economist.
The severity of the problem will depend on what happens to land values, interest rates and net farm income, Klinefelter says.
One of the main drivers of change for ag credit lending will be the federal regulators who have more clout than the lawmakers, according to an Agriculture Online report. In addition, Congress and regulators are recommending higher minimum capital requirements to mitigate risk. "When you increase the capital requirements, it restricts how much a lender can be leveraged," Klinefelter says.
In 2009, U.S. net farm income is expected to be $54 billion, down $33 billion from 2008 levels. "I think if we drop below $50 billion, the U.S. ag sector will see serious problems," Klinefelter says. “If land values fall by 30 percent or more, we have big problems.” Because land is 87 percent of a farmer's assets, this figure will be closely watched.
U.S. hog producers are well aware that it is taking more capital than ever to get their livestock to market. Steve Meyer, Paragon Economics, said the current market environment is putting significant strain on pork producers.
"At least dating back to the 1970s, in the past downturns, at least it didn't cost us so much money to lose money," Meyer says. Because this lower market has seen an increase in cost of production, it has put a tremendous strain on capital resources for both producers and their lenders."
Source: Agriculture Online