The U.S. farm sector is booming with soaring land values, record-high crop prices and record farm income. For all that, farmers face stricter loan standards than a few years ago, small-farm activists say.
They say lending practices, toughened nationwide after the 2008-09 recession, are now so strict they snare creditworthy growers.
When they surveyed farm credit counsellors and farm advocacy groups, “respondents overwhelmingly reported that it has been harder for farmers to obtain loans” and in 2010 the number of farmers unable to obtain credit was higher than previous years, the activists said in a report titled “Don’t Bank on It.”
Kathy Ozer of the National Family Farm Coalition (NFFC) said the report showed the importance of Agriculture Department loans and loan guarantees as a backstop for farm finance. The coalition was one of four groups that sponsored the survey.
The USDA provides around $2.5 billion a year in operating loans and guarantees, and around $2 billion a year in farm ownership loans and guarantees.
Banks provide half of agricultural credit, while the other major lenders are the USDA and the Farm Credit System. A spokesman for rural bankers said agricultural lending standards are stricter than before the recession.
Spring is the prime season for farm finance, with planting expenses on the horizon. Ozer said the USDA has guarded against disbursing more than allowed by stop-gap funding bills.
Figures compiled by the Federal Reserve show banks made fewer non-real-estate loans from 2008-10. Loan volume leaped to $77.7 billion in 2008, up 20 per cent from 2007. The annual total for the number of loans has declined steadily for years.
Non-real-estate loans chiefly are used to cover crop production expenses or for livestock feed and care.
At the same time, lending for farmland purchases is up.
The Federal Reserve and the Agriculture Department say farm assets are rising and debt ratios falling – signs of a financially strong sector. Farmers have more cash and less need for loans, they say.
An agricultural credit report by the Kansas City Fed said, thanks to strong farm income, farmers paid off debt as 2010 ended and requested fewer loan renewals or extensions.
“Creditworthy borrowers should have ready access to credit,” said USDA economists in forecasting record-high farm income this year. They said “less-qualified individuals could face constraints accessing credit or higher interest rates relative to those paid by fully qualified borrowers.”
The survey by NFFC, Food and Water Watch, Farm Aid and Rural Advancement Foundation International-USA contacted 22 organizations that provided credit counselling to an estimated 2,700 farmers last year.