The shift in crop and livestock prices has heightened concern about a potential credit crunch for some farmers.
Nathan Kauffman, assistant vice president of the Federal Reserve Bank of Kansas City, told a House Ag subcommittee that profit margins continue to be under pressure in the crop sector and debt continues to rise.
Kauffman says, “The ability of crop producers to withstand an increase in financial stress may be a concern even as the outlook for the livestock sector has improved. Farmers with lower levels of equity, including young and beginning farmers, may be most vulnerable to financial stress, particularly if cropland values fall and farm income declines from its historically high levels.”
Kauffman says the shift began late last year, “Toward the end of 2013, declining profit margins reduced farm cash flow. As a result, demand for some agricultural loans began to rise and lending activity jumped considerably in the first quarter of 2014.”
Despite the concerns, though, Kauffman told lawmakers that commercial banks continue to recognize the long-term potential for U.S. agriculture and have financed the sector accordingly although they’ve been more cautious in some areas.