T WO S TA T E M U S E U M S have launched an online barn that houses stories of Illinois agriculture’s past, present, and future ......3
WHEN WARREN BUFFETT talks, the economy listens. But is his message about the future of rail encouraging for agriculture? ............4
FA R M E R S L A S T W E E K finally received a significant window of opportunity to get back in the fields and most did. .................8
Monday, November 9, 2009
Two sections Volume 37, No. 45
Economist: Credit crunch could be issue again in 2010 BY DANIEL GRANT FarmWeek
U.S. farmers who had difficulty covering expenses this year may face an even greater challenge in 2010. Danny Klinefelter, Texas A & M Extension economist, believes some farmers could encounter a significant credit crunch next year as operating loans may be more difficult to secure at a time when the cost of doing business is near an all-time high. “We’re on the front end of what I think could be some significant problems in 2010 on the credit side,” Klinefelter said last week during a webinar hosted by the Chicagobased CME Group. “There are going to be foreclosures on the livestock side in 2010 and there could be some problems in the crop sector as well.” Klinefelter believes most lenders have less appetite for risk due to the ongoing economic crisis. In the future, lenders could place more emphasis on the re-payment ability of customers before issuing loans, interest rate spreads could move higher, and risk premiums may increase as well.
Meanwhile, more bank failures and stress on the farm credit system likely will force more mergers of those institutions, the economist said. And demand for operating loan guarantees from the Farm Service Agency (FSA) to manage risk next year could outstrip supply. “We’ve seen a ratcheting up of capital requirements across the board (that has strained resources for producers and lenders),” said Steve Meyer, president of Paragon Economics. “We’ve seen a number of capital suppliers to agriculture that have left this business.” And the timing couldn’t be worse for some producers, particularly those in the livestock industry, who may have to rely on credit to stay afloat. U.S. net farm income is expected to plummet (see graphic on page 7) from $87 billion in 2008 to just $54 billion this year, according to USDA. “If we stay at that (2009 income) level next year (in 2010), we’re going to have some problems,” Klinefelter said. Key indicators of how the financial situation unfolds next year in the ag industry will be
farm income, land values (87 percent of all assets in the ag sector are real estate), and interest rates. Klinefelter predicted interest rates will not increase sig-
nificantly next year — “I don’t think the economic recovery has enough legs under it.” So what strategy will give farmers the best chance to survive the current eco-
nomic crisis? “Risk management is going to determine the winners and losers, particularly as we see volatility pushed down the chain,” Klinefelter added.
STILL VERY WET
Danielle Trahan tests a sample from a load of corn at the Evergreen FS Yuton elevator facility west of Normal. The load of corn tested at 27 percent moisture — a finding that typically would be high but this year is quite common due to the late-maturing crop and extremely wet fall conditions. Elevators around the state have had to slow the intake of grain this harvest and even close early in order to handle the moist crop. Read more about the effects of this year’s harvest delays on page 10. (Photo by Ken Kashian)
Periodicals: Time Valued
Economist: Cap and trade hits ‘few’ but vital sectors Ag-oriented industries high on list BY MARTIN ROSS FarmWeek
A University of California economist last week told an Illinois campus crowd “cap and trade” would have a limited domestic economic impact and would affect relatively few sectors. But as the list of most likely affected sectors emerges, it becomes clear agriculture would absorb much of the hit under pro-
posed climate legislation. Amid concerns about the economic ramifications of Senate-proposed greenhouse emissions caps, Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.), and Joe Lieberman (I-Conn.) last week announced work on a compromise measure. Following a panel discussion of climate policy on the University of Illinois’ Urbana campus, U of C-Santa Barbara environmental economist Charles Kolstad told FarmWeek “careful crafting” of current cap-and-trade measures should reduce the impact of proposed greenhouse emis-
FarmWeek on the web: FarmWeekNow.com
sions caps on agriculture. Kolstad, who co-authored an Intergovernmental Panel on Climate Change report that spurred policy debate, said higher energy/input costs related to climate regulation would be spread over “a broad sector of the agricultural community.” Farmers could largely pass
costs on to consumers, he said, a contention disputed by ag leaders at the event. Only a dozen or so industries would see double- or single-digit annual cost increases related to a $15-per-ton emissions “‘tax’ burden,” Kolstad said. However, lime production topped his list, followed by power generation. According to Illinois Farm Bureau economist Mike Doherty, the later is “the industry whose costs drive many industries’ costs.” Energy accounts for roughly 40 percent of corn producSee Sectors, page 2
Illinois Farm Bureau®on the web: www.ilfb.org