By TIM ALEXANDER
Illinois Correspondent

NORMAL, Ill. — Farm financial experts and lenders have varying opinions on the effects the worsening world financial crisis is having on farmers attempting to secure loans to pay for harvest labor, new equipment and other expenses.

Jim Garvin, chief financial officer for the Normal, Ill., branch of 1st Farm Credit Services, told Farm World in spite of some negative reports, ag lending remains strong.

“In an odd, inadvertent way, (the crisis) shines a good light on agriculture. From a national perspective, agricultural producers in the U.S. have very, very strong balance sheets and good earnings – so anybody who is supporting that industry can appreciate (farmers’) good credit quality, strength of earnings and capital,” Garvin said. “Lenders are frankly blessed by being able to serve that industry.”

Availability of capital for lenders to extend to farmers remains strong, he said.

“I don’t see that availability diminishing at all,” he said. “I think there is a greater awareness of risk and reward for everybody who is involved in lending, and all this sub-prime lending has caused everyone to take note and be more aware. But in terms of availability for farm credit, we stand willing and able to lend to farmers who have capacity, earnings and need.”

Lenders’ confidence in borrowers’ ability to repay loans, however, is dwindling, according to Carl Anderson, an agricultural economist at Texas A&M University. As a result, Anderson said it is becoming harder and more expensive for farmers and cattlemen to borrow money because banks are requiring more collateral and higher interest rates.

Garvin said the capital which lenders can extend to farmers could come at a higher cost. “The price paid for that capital in terms of interest rates varies. What our government has done in terms of the bailout has all kinds of implications that are rippling through global and national markets,” he said.

“The risk aversion that’s going on in general large-bank lending and consumer lending is causing a differential in interest rates than, say, a year or two ago.”

Anderson noted that farmers are facing their toughest lending environment in the past 25 years. He expects them to cut costs by using less fertilizer this fall, restructuring debt or putting off purchasing new equipment.

Another central Illinois ag finance specialist is hopeful farm lending can stand on its own for the foreseeable future. Andy Bastert, who leads the Illinois Bankers Assoc.’s agricultural advisory committee, told Illinois Farm Bureau’s Martin Ross that most Illinois banks will be able to offer farm loans for 2009.

Bastert said farmers are the bread-and-butter of most rural community banks and represent a bright spot on the Midwest financial landscape, Ross reported.

Producers shouldn’t be surprised when their banker asks for financial information and cash flow projections before granting a loan, according to Paul Ellinger and Bruce Sherrick, two professors of agricultural economics and authors of “Financial Markets in Agriculture,” an article addressing ag lending and the financial crisis, posted on the University of Illinois’ farmdoc website at www.farmdoc.uiuc.edu/ifeu

“This reaction by lenders is not likely a response indicating a loss in trust, but rather a requirement form the enhanced regulations of banks,” the authors stated.

Ellinger and Sherrick noted that the general financial health of ag lenders has remained viable through the crisis, largely due to strong customer-borrower relationships.

“However, the economic downturn and declining interest rates have lowered profit margins in 2008 for agricultural lenders, and nonperforming and past-due loans have increased at most financial institutions,” the writers caution. “The larger concern for agricultural lenders will be the impact ... on profit margins for producers.

“Rising input costs and cash rents, combined with lower commodity prices, increase the operating fund needs and financial risks for producers and lenders providing debt funds. Another concern involves the impact that shrinking margins will have on land prices and thus, on the financial health of their borrowers.”