Food shortage may worsen as credit squeeze threatens to cut farm output
Bloomberg in Sao Paulo and Chicago 28 October 2008
The credit crunch is compounding a profit squeeze for farmers that may curb global harvests and worsen a food crisis for developing countries.
Global production of wheat, the most-consumed food crop, might drop 4.4 per cent next year, said AgResource president Dan Basse.
Harvests of corn and soyabeans were also likely to fall, Mr Basse said.
Smaller crops risk reviving prices of farm commodities that sank from records this year after a six-year rally that spurred inflation and sparked riots from Asia to the Caribbean.
Futures contracts on the Chicago Board of Trade show wheat will jump 16 per cent by the end of next year, corn will rise 15 per cent and soyabeans will gain 3 per cent.
“The credit situation is worrying even the biggest and best farmers,” said Brian Willot, a former University of Missouri commodity analyst who now grows soyabeans.
“For the financially weak, credit has dried up completely. For the strong, credit has been delayed and interest rates are higher.”
Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains at the United Nations Food and Agriculture Organisation, said the number of hungry around the world was at risk of increasing as the financial crisis cut investment in agriculture and crops.
The total increased by 75 million last year to 923 million, the UN estimates.
“The net effect of the financial crisis may end up being lower planting, lower production,” Mr Abbassian said.
Enori Barbieri, a vice-president at the National Corn Producers Association, said in Brazil, the world’s third-biggest exporter of corn after the United States and Argentina, production might fall more than 20 per cent because farmers could not get loans to buy fertiliser.
Lucio Araujo, a commercial director at farmer co-operative Cooxupe, said the nation’s coffee harvest, the world’s largest, might drop 25 per cent for the same reason.
Borrowing costs increased and farmers struggled to get loans after the worst financial crisis since the Depression made banks and grain processors, including Cargill and Archer Daniels Midland, less tolerant of risk.
Cargill and Archer Daniels, the world’s largest grain processors, were among the crop buyers to halt financing for growers in Brazil, said Eduardo Dahe, who represents the companies as president of the National Association of Fertiliser Distributors.
Processors usually cover 50 per cent of the financing needs of farmers by accepting part of the future crop as payment.
“No one is doing it,” Mr Dahe said. “It’s stopped.”
Arkady Zlochevsky, president of the Russian Grain Union, said in Russia, loan rates for farmers had jumped 50 per cent in some cases to more than 20 per cent in the past few months.
US Agriculture Secretary Ed Schafer said while the credit squeeze gripping emerging markets had yet to hurt the US, the risk remained.
“We certainly could see tight credit having an effect on agricultural production,” Mr Schafer said.
“The costs of farming operations today are huge, and that backs up to the banks that have balance sheets that are tight, it backs up to elevators that have credit stretched out.”
To be sure, farmers in the US, the world’s largest grain exporter, may have enough cash to avoid production cuts until next year because of this year’s record profits.
Net farm income would rise 10 per cent this year to US$95.7 billion, the US Department of Agriculture estimated on August 28.
While farm debt jumped 7.7 per cent last year to US$211 billion, the total is 9.6 per cent of assets, a ratio that the government on August 28 forecast will drop to 8.9 per cent this year, the lowest level since at least 1960, the earliest data available.
“I don’t see the crisis” for US farmers, said Corny Gallagher, a fund manager for Bank of America Corp. “While commodity prices are down from their peak, they are still relatively high.”
The Federal Reserve Bank of Kansas City on August 15 said credit conditions in the second quarter, the most recent data available, “showed signs of deterioration” in the seven-state region that included Kansas, the biggest US producer of winter wheat. Loan-repayment rates fell for the first time since 2006 as wheat slid 7.6 per cent in the quarter.
Wheat has lost another 40 per cent since then.
“This year is going to be the best year and now we are looking at the potential to give it all back in 2009 if prices don’t rise above the expected cost of production,” said Mark Kraft, who grows corn and soyabeans.
“You have to hope that fertiliser, seed and land rents come down and the price of corn improves, Mr Kraft said.
One 80,000-kernel bag of Monsanto corn seed, enough for about 2.5 acres, rose 45 per cent this year to US$320, the same amount Midwest tenant farmers paid to rent an acre of land, Mr Kraft said.
A gallon of diesel for tractors averaged US$4.47 in the third quarter, up 51 per cent from a year earlier, according to American Automobile Association, the largest US vehicle organisation.
The value of the collateral farmers use to secure loans - crops and land - is diminishing. Lenders are demanding more equity for farm loans used to run operations or acquire land and equipment.
“We need two to three times the amount of money we used to need with the same collateral,” said Bo Stone, a seventh-generation farmer.
“It means we have way more risk than we’ve ever had. This is a time where one bad crop year, with the amount of money and input tied up, could cost you your equipment, land and livelihood,” he said.
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Food shortage may worsen as credit squeeze threatens to cut farm output
Bloomberg in Sao Paulo and Chicago
28 October 2008
The credit crunch is compounding a profit squeeze for farmers that may curb global harvests and worsen a food crisis for developing countries.
Global production of wheat, the most-consumed food crop, might drop 4.4 per cent next year, said AgResource president Dan Basse.
Harvests of corn and soyabeans were also likely to fall, Mr Basse said.
Smaller crops risk reviving prices of farm commodities that sank from records this year after a six-year rally that spurred inflation and sparked riots from Asia to the Caribbean.
Futures contracts on the Chicago Board of Trade show wheat will jump 16 per cent by the end of next year, corn will rise 15 per cent and soyabeans will gain 3 per cent.
“The credit situation is worrying even the biggest and best farmers,” said Brian Willot, a former University of Missouri commodity analyst who now grows soyabeans.
“For the financially weak, credit has dried up completely. For the strong, credit has been delayed and interest rates are higher.”
Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains at the United Nations Food and Agriculture Organisation, said the number of hungry around the world was at risk of increasing as the financial crisis cut investment in agriculture and crops.
The total increased by 75 million last year to 923 million, the UN estimates.
“The net effect of the financial crisis may end up being lower planting, lower production,” Mr Abbassian said.
Enori Barbieri, a vice-president at the National Corn Producers Association, said in Brazil, the world’s third-biggest exporter of corn after the United States and Argentina, production might fall more than 20 per cent because farmers could not get loans to buy fertiliser.
Lucio Araujo, a commercial director at farmer co-operative Cooxupe, said the nation’s coffee harvest, the world’s largest, might drop 25 per cent for the same reason.
Borrowing costs increased and farmers struggled to get loans after the worst financial crisis since the Depression made banks and grain processors, including Cargill and Archer Daniels Midland, less tolerant of risk.
Cargill and Archer Daniels, the world’s largest grain processors, were among the crop buyers to halt financing for growers in Brazil, said Eduardo Dahe, who represents the companies as president of the National Association of Fertiliser Distributors.
Processors usually cover 50 per cent of the financing needs of farmers by accepting part of the future crop as payment.
“No one is doing it,” Mr Dahe said. “It’s stopped.”
Arkady Zlochevsky, president of the Russian Grain Union, said in Russia, loan rates for farmers had jumped 50 per cent in some cases to more than 20 per cent in the past few months.
US Agriculture Secretary Ed Schafer said while the credit squeeze gripping emerging markets had yet to hurt the US, the risk remained.
“We certainly could see tight credit having an effect on agricultural production,” Mr Schafer said.
“The costs of farming operations today are huge, and that backs up to the banks that have balance sheets that are tight, it backs up to elevators that have credit stretched out.”
To be sure, farmers in the US, the world’s largest grain exporter, may have enough cash to avoid production cuts until next year because of this year’s record profits.
Net farm income would rise 10 per cent this year to US$95.7 billion, the US Department of Agriculture estimated on August 28.
While farm debt jumped 7.7 per cent last year to US$211 billion, the total is 9.6 per cent of assets, a ratio that the government on August 28 forecast will drop to 8.9 per cent this year, the lowest level since at least 1960, the earliest data available.
“I don’t see the crisis” for US farmers, said Corny Gallagher, a fund manager for Bank of America Corp. “While commodity prices are down from their peak, they are still relatively high.”
The Federal Reserve Bank of Kansas City on August 15 said credit conditions in the second quarter, the most recent data available, “showed signs of deterioration” in the seven-state region that included Kansas, the biggest US producer of winter wheat. Loan-repayment rates fell for the first time since 2006 as wheat slid 7.6 per cent in the quarter.
Wheat has lost another 40 per cent since then.
“This year is going to be the best year and now we are looking at the potential to give it all back in 2009 if prices don’t rise above the expected cost of production,” said Mark Kraft, who grows corn and soyabeans.
“You have to hope that fertiliser, seed and land rents come down and the price of corn improves, Mr Kraft said.
One 80,000-kernel bag of Monsanto corn seed, enough for about 2.5 acres, rose 45 per cent this year to US$320, the same amount Midwest tenant farmers paid to rent an acre of land, Mr Kraft said.
A gallon of diesel for tractors averaged US$4.47 in the third quarter, up 51 per cent from a year earlier, according to American Automobile Association, the largest US vehicle organisation.
The value of the collateral farmers use to secure loans - crops and land - is diminishing. Lenders are demanding more equity for farm loans used to run operations or acquire land and equipment.
“We need two to three times the amount of money we used to need with the same collateral,” said Bo Stone, a seventh-generation farmer.
“It means we have way more risk than we’ve ever had. This is a time where one bad crop year, with the amount of money and input tied up, could cost you your equipment, land and livelihood,” he said.
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