Financial crisis lifts farmer costs

by Editor
Wednesday, October 01, 2008

The current U.S.- financial crisis could moderate global and domestic demand for U.S. farm products, according to financial analysis issued by the American Farm Bureau Federation (AFBF).

According to the analysis prepared by AFBF economists, overall the U.S. agricultural balance sheet is very strong, although the situation is always variable among individual farmers and ranchers.

The fallout from the general financial malaise could be felt worldwide, especially in countries that may be already facing slowing economies due to the high price of energy, according to AFBF Economist Terry Francl, one of the authors of the analysis.

Francl indicated that the Agriculture Department is projecting record high farm income in 2008. Another measure of economic health in farm country, debt-to-asset ratio, is at a modern low of 10 percent.

The analysis states, however, that within the United States, the credit supply is being impaired, which affects the cost of credit. This crunch is already affecting some agri-business companies, as reflected by recent developments in the fertilizer sector, according to Francl.

The report also notes that spillover effects are affects farmers’ commodity sales to elevators and processors. Farmers are not being asked to provide more credit, but are being offered a lower price for their crops, generally due to the higher “basis,” which is the difference between the futures price and the local cash price.