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Brace for drop in ag lending due to lower crop prices
RAPID CITY, S.D. (3/11/14)--Across the country agriculture has boomed in recent years, and the benefits of that have trickled down not just to farmers, but also to the financial institutions who serve them.

The U.S. Department of Agriculture (USDA) has forecast commodity and crop prices to tumble in 2014, meaning credit unions and other financial institutions may have to brace themselves for a difficult stretch (American Banker March 7).

"You need to make sure you have some good margins in there," Phil Love, president/CEO of Midwest Business Solutions (MWBS), a commercial and agricultural lending credit union service organization, told News Now Monday. "Prices are going to fluctuate so much up and down, if you leverage a farmer up too much...if prices retreat, he could be doing the same business, but overall gross income will have dropped substantially."

The USDA projects net farm income will drop by 26% this year, or down to about $96 billion. If correct, the weak year would spoil a three-year stretch of record-high profits.

But while staple crops like corn, wheat and soybeans are expected to take the biggest hits, Love said those who can diversify their operations, such as with cattle which remains strong, may be able to hedge their business in future down stretches.

"Depends upon what you're in," Love said. "Cattle and hogs and stuff like that are extremely strong in terms of prices, if you compare (them) with a couple of years ago."

Meanwhile, even if the USDA prediction comes true, 2014 still would boast a better 12 months than the 10-year running average, likely driven by the recent farming surge.  

That upswing has boosted land and equipment loans considerably.

Total farm debt jumped 15% between 2009 and 2013, to more than $309 billion, according to the USDA. Net income at farm banks climbed 57% from 2009 to 2012, or up to $3.6 billion, according to data from the American Bankers Association.

MWBS reported total loan closings of more $40 million and outstanding balances of $20.3 million at the end of 2013.


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