CHICAGO | Fri Apr 15, 2011 8:50pm EDT
CHICAGO (Reuters) - The U.S. agricultural economy is the healthiest in years as rising farm income allows farmers to pay off debt and buy land and machinery to meet booming demand for crops and livestock.
So why worry?
Because historically low interest rates and rising land values heighten concern about speculative bubbles, a debt binge and all the risks associated with seesawing commodity prices, according to one federal official.
"It's not an issue right now," Jason Henderson, vice president and chief economist at the Kansas City Federal Reserve Bank, said in an interview. "But going forward, we are going to be watching those debt levels and leverage ratios."
Rural bankers remember well the 1980s Farm Crisis when over-leveraged farmers across the country lost their farms, driving land values lower in a vicious spiral of sales as credit tightened, payments were missed and assets were lost.
Right now, Henderson said, U.S. farmer debt is the lowest it has been in 50 years, helped by record incomes as row crop producers benefited from surging commodity prices, especially for corn, soybeans and wheat.
In the first quarter of 2011 farmers continued to ease their loads, Henderson said.
"With strong profits farmers will make some investments, so are they going to be using cash or are they going to start leveraging up," Henderson said.
"That in the past is when agriculture has gotten into trouble -- when they start leveraging up."
Nevertheless, the rush is on by farmers to upgrade and expand -- the mantra of the Midwest Corn Belt since World War Two, as the U.S. became the world's breadbasket for food exports.
Top equipment producer Deere & Co, for example, said on February 16 its first quarter 2011 net profit doubled from a year earlier as its sales of tractors and harvesters and other equipment rose 27 percent. It lifted its full-year outlook.
Meanwhile, prices of prime crop land in the central Corn Belt and northern Plains rose as much as 20 percent in 2010, the Kansas City Fed said its quarterly Databook this week.
Henderson, in testimony to a U.S. House Subcommittee on Agriculture on Thursday, said U.S. ag banks have recently seen a shift in lending -- less on the operating expenses side and more aimed at intermediary and longer term loans.
U.S. farm machinery and equipment loans jumped 73 percent in the first quarter, the Fed said.
In contrast, livestock loans fell 9 percent in quarter amid a welcome rise in feeder cattle prices. Livestock loans had risen substantially during the last half of 2010.
{ 0 comments... read them below or add one }
Post a Comment