USDA boosts funding for farm operating loans to ease credit crunch

By Bill Tomson

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WASHINGTON, Sept. 2, 2016 - USDA's Farm Service Agency announced today that it is offering some much-needed relief to financially stressed farmers by making an additional $185 million worth of direct and guaranteed loans available in the short remainder of this fiscal year.

The additional funds will make it possible to issue or guarantee 1,900 loans to farmers who already applied and have been waiting for the credit they need to buy fuel, fertilizer, feed or other inputs, FSA said. The money won't be able to meet nearly all of the pent-up demand, the agency said. In fact, it will only cover about 30 percent of the outstanding need until the next fiscal year starts on Oct. 1.

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 “Some of our farming and ranching customers are experiencing challenges due to market conditions and have been on a wait list for up to 60 days, so this will help those applicants whose paperwork has been pending the longest period of time to obtain credit or restructure loans as needed,” FSA Administrator Val Dolcini said in a release. “While the backlog in loan applications will grow between now and the end of the fiscal year, it is important for borrowers to continue to apply since we will process loans on a first-come-first-served basis based on the application date, once funding is replenished in fiscal year 2017.”

The growing demand for the farm operating loans can be tied directly to years of week commodity prices, said Bob Young, chief economist for the American Farm Bureau Federation.

“It is kind of a sign of the times, just as much as anything else,” Young said. “For the last several years… farmers that you talk to were basically self-financing… They had the cash in hand so they didn't have to go to the bank for loans to be able to put the crop in the ground. Some farmers have obviously chewed through that money and are now saying I need to go to the bank and get a loan.”

FSA in its statement confirmed that the loans it makes or guarantees are in much higher demand than in past years.

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It's a problem that was pointed out earlier this year by Nathan Kauffman, assistant vice president and Omaha branch executive with the Federal Reserve Bank of Kansas City. Default rates are still low, Kauffman told the Senate Appropriations Subcommittee on Agriculture in a special session in March, but he stressed that prolonged declines in commodity prices and farmer income threaten to weaken agricultural credit conditions and put pressure on farmland values.

Farm income is expected to fall in 2016 for the third year in a row, according to a new forecast released this week by USDA's Economic Research Service. The updated prediction for net farm income is $71.5 billion, down from $80.7 billion in 2015 and $92.6 billion in 2014.

The FSA also reminded farmers today that they can get similar loan guarantees from the Small Business Administration and may even be able to switch back into the FSA program after they get a loan.

But Young said there is a danger of farmers taking on too much debt.

“The concern is that if we get to the stage where they're rolling these operating loans from one year to the next and some of that may be what's going on here,” he said. “I suspect that the demand level for those loans is going to remain high,” Young said.

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