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Caution Needed As U.S. Farmers Borrow

A senior U.S. lender is warning farmers to take a cautious approach to borrowing, with crop prices unlikely to maintain their high levels in the coming years and the U.S. debt crisis overhanging the economy.

Emboldened by soaring grain and oilseed prices, U.S. farmers have aggressively borrowed to buy land and equipment in recent years, said Sterling Liddell, vice-president food and agribusiness research and advisory for Rabobank Americas.

“There’s been liquidity because of high prices and generally giving farmers more money to invest in their operations,” Liddell said.

Corn hit an all-time high in June and remains at high levels, with corn stocks projected to be the lowest in 15 years before this autumn’s harvest. But Rabobank sees grain and oilseed prices coming off their current levels.

“The last part of 2010 and so far in 2011 have represented a time when globally we’re very tight in stocks,” Liddell said. “Our anticipation is that over time we’re going to rebuild those stocks and bring prices down from where they are now … in the next three, four years.”

LAND PRICES CLIMBING

Farmers have not yet curbed their appetite for borrowing, but U.S. farmland values that have soared by 20 to 70 per cent in the past five years have given them reason for pause, Liddell said.

“They’re starting to talk about being a little bit more cautious with assets increasing in value, especially land, but at this point there has continued to be quite a bit of investment back in operations.”

Grains and oilseeds have moved into a long-term, higher price range since 2006, driven by use of crops for biofuels and rising demand from countries like China, but they will come off those highs somewhat as crop stocks grow, Liddell said.

However, in the immediate term, there’s no correction in view. Grains and oilseeds are both likely headed higher by the end of 2011, with oilseeds rising fastest, he said.

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