Several major farm groups wrote to USDA Secretary Ed Schafer last week, asking for USDA assistance to forestall a potential liquidity crunch in the agribusiness sector should commodity prices rise later in the year.
Specifically, the groups said that they believe USDA is authorized under laws like the Commodity Credit Corporation Charter Act to establish a temporary loan guarantee program that would ensure efficient marketing of farm commodities in the event of liquidity problems.
The groups say that such a temporary program would provide loan guarantees to qualified financial institutions lending to grain and cotton hedgers and other agribusiness entities. With these guarantees in place, lenders would be better able to provide greater levels of financing to grain and cotton hedgers, allowing them to continue to offer forward contracting arrangements and farm supply input financing to producers.
They add that the guarantees are needed due to the fact that rapid escalation of commodity prices and farm input cost this summer forced many grain handlers to double or triple their borrowings to ensure hedges were maintained in the futures markets. Increased borrowings, in turn, placed significant pressure on company balance sheets and negatively affected availability of forward contracts for farmers.
According to the letter, though prices have come down since earlier in the summer, strong harvests are expected this fall and any market disruption, like an early frost, could cause prices to spike. That, combined with greater financing needs of growers who are facing enormous input cost increases, could cause a liquidity crunch in the agricultural marketing chain.
Signatories of the letter include: American Farm Bureau Federation; American Soybean Association; National Association of Wheat Growers; National Corn Growers Association; National Cotton Council; National Council of Farmer Cooperatives; National Farmers Union; National Grain and Feed Association; National Sorghum Producers; U.S. Rice Producers Association, and USA Rice Federation.