A3t-Lanc«st«r Farming, Saturday, Dacambar 14,1985
The Farm Credit dilemma
What is the current agricultural
credit situation faced by Penn
sylvania agricultural producers
and what effect has it had and is it
having on the agricultural credit
availability for the short-term and
future?
It is obvious to everyone
associated with agriculture that
the industry is suffering through
poor economic times.
Current prices for most com
modities are at low levels with
most near loan level. These cmv
ditions are likely to continue until
the world economy recovers and
the U.S. resolves its large budget
deficits.
Favorable actions affecting
these values are needed to have a
more normal currency value
relationship and in effect
“weaken” the U.S. dollar. This, of
course, would have a positive
effect on ag exports.
Also a major factor affecting the
ag economy has been the rewriting
of national farm program
legislation in 1985.
The depressed agricultural
economic condition has had a
direct effect on the cost and
availability of ag credit. It has also
had an effect on the source of
credit. Table 1 provides a
U. S. % Pennsylvania H
(Million Dollar*) (Rounded to (Thouaand (Rounded
Nairait H) Dollar*) to Naaraat
Source
Non-Reel Estate
Bank*
RCA
FmHA
CCC 0,710
Individual* A Other* 11,000
TOTAL
Baal Eatat*
Banka
FLB
Ufa Inauranc* Co.
FmHA
Individual* A Other*
TOTAL
GRAND TOTAL 212.541
Large Quantities of Sawdust
Available
10 cents per cubic foot
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KONDOR LUMBER CO.
York, PA
717-755-6841
breakdown of farm loans by source
for real estate and non-real estate
for the U.S. and Pennsylvania. The
information was obtained from
Farm Credit Reports compiled by
the Economic Research Service,
USDA, as of January 1,1985.
The alarming figure in Table 1 is
that nearly one-third of the crop
operating loans in Pennsylvania
are financed by individuals and
others. This indicates that a large
number of Pennsylvania crop
loans are an open account with
suppliers. This situation is not
unique to Pennsylvania. As the
chart indicates, nationwide 18
percent of the non-real estate debt
is held by this category.
The main credit burden facing
ag producers in Pennsylvania and
the U.S. is the large number who
are highly leveraged. According to
Neil Harl, Professor of Economics
at lowa State University, farmers
with a debt to asset ratio of greater
than 70 percent are in the
most trouble. In other words, for
every $lO of assets, these farmers
owe more than $7.00 in debts. At
this level it would take an 8 percent
return on all assets just to pay the
interest bill. Table 2 gives an
overview of the debt to asset ratio.
TABLE 1
30,742
17,025
15,051
100,012
10,177
40,103
12,444
10,013
20,000
111,837
362.000 20
333.000 25
17.000 1
171.000 13
14.000 1'
415.000 32
1,312,000
3*5,000 22
004.000 40
31,000 2
170.000 10
420.000 20
1,887,000
2,878.000
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Professor Harl states that farms
with ratios greater than 40 percent
are facing financial problems and
most are losing net worth. With a
40 percent ratio, it takes a return of
4.5 percent to pay interest costs.
As ag producers become more
highly leveraged they face the
problem of higher interest costs
and also the problem of where they
will be able to obtain credit. More
and more producers are failing to
meet financial standards and
collateral requirements to remain
customers of private lenders.
At one time, Production Credit
Association (PCA) was the major
ag production loan lender in
Pennsylvania. As Table 1 shows,
now they account for only 25
percent of all non-real estate farm
loans. Since PCA is a cooperative,
it must balance its losses with
adjusted income from interest
rates and collateral requirements
of existing borrowers who are
members of the cooperative. PCA
identifies the majority of their
problem loans as customers who
did not own any land, and whose
collateral was based on
depreciated and devalued farm
machinery.
'KEN CLUGSTON VERNON SEIBEL
665-6775 665-2782|
CRAFT-BILT I
CONSTRUCTION iNC. |
FARM-HOME BUILDING
R.DJ2 MANHEIM, PA.
PH: 665-4372
, BUILDING & REMODELING FOR
t DAIRY RESIDENTAL
SWINE POLE BUILDINGS
i BEEF STORAGE
BANK FARM CUSTOMER'S DEBT TO ASSET RATIO
Dtbt to Aottt North* Com
Ratio oaat Salt
Under 40H
4140 H
II4OH
3* 42 31 37 37 33 M
30 23 27 30 34 23 13
13 13 20 13 13 13 7
•1H and Over
■aaad on American iankara Aaaoeiatlon Survay In Mld*lM4.
• Baaad on PFA Farm Managamant tarvlcaa Anatyala of Ita eltanta aa of January 1, IMS.
Federal Land Bank (FLB) has
8,293 borrowers in this state and
has 40 percent of the ag real estate
in this area mortgaged. As of
September 1, 1985 it had acquired
21 properties by foreclosure at a
value of $2.4 million dollars. FLB
officials state that the number of
part-time and dairy farmers in
Pennsylvania adds to the stability
of their loan portfolio.
The new programs offered by
FmHA do not appear to be
providing much relief for existing
borrowers in easing their debt
loads. National statistics released
as of August 31 by FmHA show that
only 14,138 farmers have qualified
for the set aside program. They
also state that over 100,000
borrowers who are presently with
FmHA have applied.
TABLE 2
REGION
South Plaint Waal U.t. *7148*8
(H of Sank Guatemala)
FmHA had approved only 342
applicants for the set aside
program in Pennsylvania.
Apparently the program
requirements are such that is
requirements are such that it is
applicable to only a very limited
number of FmHA officials say that
many producers have such a large
or long-term debt load that even
the setaside will not show a
positive cash flow over a period of
time.
Also most private lenders ap
pear reluctant to participate in the
10 percent writeoff loan guarantee
program. As of the end of the year,
no one had made use of this
guarantee program. Overall it
appears that private lenders are
reluctant to use any of the loan
A39]