Thursday, June 02, 2016

Cash-strapped farmers getting so many federal loans that money may run out this summer

"Farmers and ag lenders relying on Farm Service Agency direct loans or guarantees could see those loans delayed this summer as demand is quickly draining available funds," Chris Clatyon reports for DTN The Progressive Farmer. "Several ag groups are sending a letter Thursday to members of the House and Senate appropriations committees highlighting the escalating demand for these loan programs and pointing out the USDA's Farm Service is expected run out of funds later this month for direct operating loans and guaranteed operating loans. Roughly $650 million in potential farmer loans could be delayed."

More farmers are turning to FSA for financial aid, maonly because the commodities they produce are bringing lower prices, Mark Scanlan, senior vice president for agriculture and rural policy at the Independent Community Bankers Association, told Clayton, who notes: "While loan guarantees and direct loans were often considered reserved for beginning farmers or smaller producers, more ag lenders are seeking guarantees on loans with commercial farmers. Other farmers are increasingly turning to FSA for direct operating loans as well. The main problem is that more farmers are struggling to cash-flow their operations."

Citing Doug Stark, president and CEO of Farm Credit Services of America, Clayton reports, "One of the biggest challenges facing farmers in the current market cycle isn't as much an issue of debt-to-equity, but working capital." Stark told him, "Leverage and interest rates aren't the issue in this cycle, it's cash flow with the cost of production and the price of commodities."

Clayton gives the nuts and bolts: "FSA was budgeted $2 billion for guaranteed farm ownership (real estate) loans, and has funded $1.67 billion thus far. Loan availability may differ from state to state. FSA grants each state an allocation so one state may use its loan authority quicker than other states and run out. USDA does have an emergency funding lever to pull, with authority to add up to 25 percent for FSA loan programs if demand outstrips appropriations. USDA has used that authority the past two years, but not for the full amount possible. If that authority is used again this summer, it's likely nearly all of it will be used as credit. If loan demand reaches the point USDA is forced to stop or delay funding loans, farmers could wait until the new funding year begins Oct. 1. The delay could go longer depending on complications with congressional appropriation bills."

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