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Agriculture untouched by credit crisis - for now
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Wednesday, October 15, 2008 10:09 AM EDT
Argus-Press Photo by Anthony Cepak A farmer harvests a field of beans off M-52 in Middlebury Township last week.
OWOSSO - While the climate on Wall Street seems as if it's shrouded in dread and uncertainty recently, the agriculture industry has been able to remain - for the most part - stable.
However, even the most optimistic are cautious about the future.
GreenStone Farm Credit Services is Michigan's largest agricultural lender.
And Travis Jones, chief financial officer for GreenStone, said their institution is doing very well despite what has been happening with the rest of America's economy.
“Farm credit bonds are looked at today as very safe bonds because the lack of problem loans that we have in our system. Therefore, our credit quality has been very high compared to most institutions in the country right now,” Jones said. “Today, our customers are getting very good rates in a market that is very tough for most other industries.”
But Jones added situations might vary.
“I think if you talked to 10 different banks today, you would probably hear 10 different stories on how much money they have to lend and at what rates,” he said.
GreenStone is a Government Sponsored Enterprise (GSE) with a self-funded insurance fund. And unlike publicly-traded GSEs such as Fannie Mae and Freddie Mac, GreenStone is a customer-owned cooperative.
“Interest rates will probably be increasing slightly, but certainly we are not as impacted compared to the large banks throughout the country,” Jones said. “If you were to ask if we have been untouched, the answer would be ‘no.'”
Jones said the lending climate is always subject to change at any moment.
“Anybody that is making predictions right now is going out on a limb. There are huge financial institutions that were around a month ago on Wall Street that are not around today,” Jones said. “To say that everything is going to be smooth sailing two months from now might be foolish. But to say that it might be worse might be foolish as well. Things are just changing very fast right now in the financial markets and companies need to be able to manage the best that they can.”
Dave Schweikhardt, a professor in the agriculture, food and resource economics department at Michigan State University, is not quite as positive.
He said one of the reasons farmers haven't felt the economic crunch is because they are in the harvest season.
“This is not a peak time for farmers to be borrowing money,” Schweikhardt said. “This is approaching the time when farmer's traditionally repay money that was borrowed earlier for this year's crop.”
He said farmers might find themselves in for a rude awakening soon.
“The real impact will be late this fall and throughout this winter when farmers go back to borrowing again,” Schweikhardt said. “I believe that credit could be very tight this winter. We are seeing it in all credit markets, so I see there is absolutely no reason why agriculture is not going to face a tougher credit situation this winter.”
He also added farmers, like everyone else, would probably have to show more proof they will be able to pay off their debts.
“This situation has changed very rapidly and dramatically in the last two to three weeks,” Schweikhardt said. “I see what I consider to be a lot of ‘happy talk' in the farm media...I see an awful lot of discussion in the press that suggests to me that people are being far too casual and that this is not going to affect the agriculture sector. I disagree with that 100 percent.”
But the economy has affected the industry in other ways than just credit. Jim Hilker, another professor in the agriculture, food and resource economics department at MSU, said there are issues many people may not realize.
For example, even through tough economic times, most Americans don't change their eating habits, Hilker said. But people might not bid as high on good cuts of meat, which could affect livestock prices.
Also, the recent drop in fuel prices affects the agriculture industry in both positive and negative ways, he said. On the plus side, lower prices for fuel allow farmers' input prices to go down.
“On the other hand, corn prices are very much tied to energy prices right now. We are supposed to use one-third of our corn this year on ethanol,” Hilker said. “Ethanol is a gas substitute, so it is priced on gas. So, if gas prices come down, I can guarantee you ethanol prices will come down. Then I can guarantee you that corn prices will go down. And they have.”
Brad Ritter, a dairy farmer from Byron, said the weakening American dollar has helped farmers when it comes to exporting.
“We are more competitive in the world market,” Ritter said. “When you are dealing here at home, and everyone is using the same currency, it doesn't seem to affect Americans. But on the world market, it really helps us.”
But Ritter also is cautious.
“The good times that we talk about now could be short-lived in the near future,” Ritter said. “There is a lot of nervousness, especially in the last couple of weeks.”
- Contact Michael Peterson at 725-5136 extension 223 or mpetersonarguspress@gmail.com.