Tight loan funding squeezes agriculture

The credit crisis spawned by the sub-prime residential loan foreclosure debacle, is hitting all businesses, but none more than agriculture.

Agriculture is a credit-based business. You take out a loan to get the funds to support your family, plant a crop and maintain your livestock and equipment, and hope that after the harvest, there's enough finds to pay off the loan and have a few bucks left over.

When they're scared, as they are in the present mess, lenders cut back loan-to-value ratios, demand more strict appraisals of real estate, crops and livestock so that they show less value--which when combined with a lower loan-to-value ratio, puts a real squeeze on farmers and ranchers.

Crop and livestock prices are good right now, but costs are high and rising--led by fuel and oil-based products like fertilizer and corn. When skittish lenders cut back on loans, the crunch it creates is real. Mama is probably already working in town, and chances are Dad does at least a little something to generate cash, besides farm or ranch. Now with inadequate operating funds, they're staring down the barrel of a shotgun.

The credit squeeze has especially hit agricultural real estate hard. It's always hard to find money to buy or sell a farm or ranch. Now its almost impossible. For a farmer or rancher in trouble, the prospects of selling out to raise enough money to buy your way out and live to fight another day are dim. Ranch real estate brokers say times are real tough in their business.

It's probably a temporary condition, and most farmers and ranchers will live to find a way to muddle through. But it's nerve wracking while you're going through it.