Farm Credit Demand Dampened by Price Outlook

February 29, 2000

USDA says uncertainty over how long low commodity prices will persist is depressing demand for farm credit. However, widespread negative effects on farm loan portfolios have not materialized.

"Financial institutions serving agriculture continued to experience improved conditions in 1999 and some additional gains are possible in 2000," USDA said in its latest agricultural income and finance report summary.

However, lenders continue to be concerned about whether some farmers can repay loans given continued low prices for agricultural commodities, regional weather and disease problems and uncertainty over future federal support. About 14% of all farm businesses are expected to experience debt repayment problems this year, and farmers. use of net repayment capacity is forecast to increase 66% this year, up form 56% in 1999.

This year lenders will deal with a farm sector in which net cash income is expected to decline roughly 16% to $49.7 billion, substantially less than the 1990-98 average of $55.1 billion, said the report. The impacts of this decline will not be evenly distributed across all farm operations.

Producers of food grains, feed grains, cotton, oil crops, tobacco and dairy are more likely to experience financial stress this year while beef, poultry, vegetable, fruit, nursery and greenhouse operations are less likely to experience financial difficulties.

Farm business debt should decline slightly this year, the second consecutive decline following six years of expansion. Total farm business debt at year-end 1999 is estimated at $172.8 billion. Nonreal estate loans are expected to decline about 1% this year, while real estate loans should increase by less than 1%.

The summary can be accessed from the Internet by clicking here