LUBBOCK, Texas (AP) -- There is new trouble at the ranch.
The worsening financial crisis is making it harder and more expensive for farmers and cattlemen to borrow money to pay for feed, land and salaries. While the credit squeeze on the agricultural sector is buffered somewhat by subsidies and other federal assistance, the timing is nonetheless bad: The costs of fertilizer, fuel, seed and equipment have all risen sharply in recent years, and a global recession is on the horizon.
"Other than the sky is falling, I'm OK, I guess," said West Texas rancher John Welch, who manages 10,000 head of cattle.
With confidence dwindling in borrowers' ability to repay loans, banks are requiring more collateral and higher interest rates from crop farmers, ranchers and meat processors, said Carl Anderson, an agricultural economist at Texas A&M; University. "The bankers are turning conservative."
This is the toughest lending environment farmers have faced in about 25 years. At the same time, the agricultural sector has historically done better than other industries during a recession because of the local lenders' familiarity with the area, the safety net provided through farm bill programs and producers having crop and revenue insurance coverage.
In response to the lending crunch, farmers and ranchers are expected to rein in costs wherever they can -- whether it means using less fertilizer, restructuring debt or putting off new equipment purchases.
While the weakening global economy is putting downward pressure on fuel prices, it is also depressing the value of grains and livestock -- and that will eat into farmers' and ranchers' pocketbooks. The upside for consumers is that food prices are likely to come down.
Rancher Jay O'Brien of Amarillo, Texas, said he and others like him are bracing for emotional discussions with bankers on the assumption that it will be much more expensive to borrow for 2009 than it was a year earlier. Some cattle producers already are having difficulty getting loans large enough to make deposits at feed yards.
"The loans are probably twice (the amount of) what they were a year ago, or two years ago," said Monty Whipple, who grows corn and soybeans near Utica, about 90 miles southwest of Chicago and relies on a revolving line of credit to pay for things like seed and chemicals.
That said, the agricultural sector won't be frozen out of credit markets entirely. For starters, the industry's traditional lenders -- independent commercial banks -- are on more solid financial footing than the country's largest investment banks and commercial banks, which have suffered the most in recent months from mortgage-related losses.
Moreover, federal assistance programs put in place in response to the country's farm crisis of 1919 are still active, helping the industry weather the current crisis.
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