The article stated that, “Agricultural borrowers are increasingly concerned about access to credit. Amid economic weakness and a financial crisis, commercial banks have tightened credit standards for various types of loans. While agricultural borrowers may be concerned about credit availability, agricultural lenders are equally concerned about the creditworthiness of agricultural borrowers as the farm economy weakens.
“As the financial crisis deepened, agricultural banks outperformed other commercial banks—but they still saw their profits decline. Despite questions regarding credit availability, commercial banks are extending credit to agricultural borrowers at lower interest rates. The soft erosion in agricultural loan quality, however, has led agricultural lenders to tighten credit standards and shift more financial risk to borrowers.
“The U.S. financial crisis has trimmed the profitability of agricultural banks and other commercial banks. However, agricultural banks performed much better than their banking peers. The strongest performance emerged from smaller agricultural banks.”
The article added that, “Despite their relatively strong performance, agricultural banks tightened lending standards to preserve capital and manage the risk arising from the economic downturn. Agricultural banks continue to originate agricultural loans at relatively low interest rates. However, banks are increasing collateral requirements and shrinking loan maturity as agricultural loan quality deteriorates.”
The newsletter concluded with this general overview: “Also, the expected decline in agricultural income has contributed to softer farmland values. Agricultural credit surveys from the Federal Reserve indicate that farmland values edged down in the fourth quarter of 2008. Farmland is a major source of collateral for agricultural loans, especially for smaller agricultural banks. The decline in farmland values could shrink the amount of collateral available for agricultural loans.
“In sum, the financial crisis and resulting recession have dimmed economic prospects for the agricultural economy and trimmed profits at agricultural banks. Still, agricultural banks have performed much better than other commercial banks and appear to have funds available for agricultural loans. However, a steeper downturn in the agricultural economy could erode the creditworthiness of borrowers and further tighten credit standards on agricultural loans. With the combination of weaker profits at financial institutions and rising risk on agricultural loans, agricultural borrowers are being asked to accept more of the financial risk emerging from a volatile agricultural environment.”
Meanwhile, the February edition of the “AgLetter,” the agricultural newsletter published by the Federal Reserve Bank of Chicago, indicated that, “Farmland values declined in the fourth quarter of 2008 for the Seventh Federal Reserve District—the first quarterly decrease in a decade. There was still an annual increase of 5 percent in the value of ‘good’ agricultural land for 2008, based on 209 surveys completed by District agricultural bankers. Few respondents expected farmland values to rise in the first quarter of 2009, but 35 percent expected them to fall in their respective areas.”
The AgLetter also provided this general overview of the U.S. agricultural economy: “According to the USDA, the value of crop production in the U.S. climbed to $182 billion in 2008—an increase of 21 percent from 2007. However, lower crop prices were estimated to reduce the value of crop production to $161 billion in 2009. The global recession and accompanying decline in oil prices hurt crop prices, since demand for food, feed, and biofuels ebbed. For the 2008–09 marketing year, the slower pace of demand was projected to leave U.S. ending corn stocks at 1.79 billion bushels and soybean stocks at 210 million bushels. The corresponding stocks-to-use ratios were expected to be 15 percent for corn and 7.1 percent for soybeans. These more ample supplies of corn and soybeans contributed to lower USDA forecasts of crop prices.
“Additionally, the value of livestock production was predicted to decline to $132 billion in 2009 from $143 billion in 2008. Direct government payments to agriculture were anticipated to be $11.4 billion in 2009, 8 percent down from 2008. After accounting for a smaller decrease in input costs and payments to laborers, creditors, and landlords, the USDA forecasted net farm income for 2009 at $71.2 billion, down from $89.3 billion in 2008. Given these conditions, just 4 percent of respondents expected farmland values to increase from January through March of 2009, while 35 percent expected values to decrease and 61 percent expected values to remain the same.”
In market price developments, Bloomberg writer Jeff Wilson reported yesterday that, “Corn rose from a two-month low on speculation that a drop in the dollar will boost demand for supplies from the U.S., the biggest exporter. Soybeans fell as Argentina took steps to head off a farm strike.”
On the issue of a potential farm strike in Argentina, Matt Moffet reported yesterday at The Wall Street Journal Online that, “Argentine farmers, beset by falling commodity prices and drought, said they will halt sales of grains and some beef cattle for four days to protest President Cristina Kirchner’s agrarian policy.
“The announcement came minutes after the government agreed to a meeting with farm leaders next Tuesday.
“Farmers are calling on Mrs. Kirchner to reduce a 35% export tax on soybeans, offer greater drought assistance and ease controls on marketing corn, wheat and beef.”
In other global news regarding agricultural production, Bloomberg writer Madelene Pearson reported yesterday that, “Recent rain in parts of Australia, the world’s fourth-largest wheat exporter, improved the outlook for the nation’s next cereal and oilseed crops sown in coming months, GrainCorp Ltd. said.”
The article added that, “The just completed wheat harvest in Australia was the biggest in three years as the nation recovers from the worst drought in 100 years. Farmers start sowing their next crops of wheat, barley and canola from about April for harvest beginning in November. New South Wales is usually the nation’s second- biggest grain grower.”
“The U.S. is forecast as the world’s largest wheat exporter in 2008-09, followed by Canada, Russia and Australia, according to the U.S. Department of Agriculture.”
Earlier this week, USDA’s Foreign Agricultural Service (FAS) issued a report highlighting wheat production in Ukraine. The report stated that, “Ukraine has become a major exporter of grains during the past ten years. Following a bumper harvest in 2008, wheat exports for 2008/09 are estimated at nearly 10 million tons. Wheat is Ukraine’s major winter grain, and although final yields will depend largely on spring weather, early prospects for 2009/10 winter crops are favorable.”
FAS added that, “The USDA estimates 2008/09 Ukraine wheat production at 25.9 million tons, the largest crop since the record harvest of 30.4 million tons in 1990/91. Initial USDA estimates of global crop production for 2009/10 will be released on May 11, 2009.”
Meanwhile, in U.S. livestock market news, Bloomberg writer Whitney McFerron reported yesterday that, “Cattle futures rose for the first time in six sessions on signs that the supply of animals in the U.S. is shrinking. Hog prices fell.
“The Department of Agriculture may report [Friday] that the U.S. feedlot herd on Feb. 1 was 5.6 percent smaller than a year earlier, according to the average estimate of 10 analysts surveyed by Bloomberg. Meatpackers processed 3.881 million cattle from Jan. 1 to Feb. 14, 7.7 percent less than a year earlier, USDA data show. Wholesale beef prices are the lowest since 2005.”
In the U.S. dairy sector, the USDA’s National Agricultural Statistics Service (NASS) indicated in its Milk Production report from yesterday that, “Milk production in the 23 major States during January totaled 14.9 billion pounds, up 1.0 percent from January 2008…[T]he annual production of milk for the U.S. during 2008 was 190 billion pounds, 2.3 percent above 2007.”
Yesterday’s NASS report also included two helpful graphics, one showed U.S. milk production over the past ten years, while another depicted the number of milk cows in the U.S. over the past decade.
A related article on dairy prices that was posted yesterday at ABC Rural Online (Australia) stated that, “US Dairy Prices are collapsing with falling global demand, but unlike the EU, the US so far is resisting domestic industry pressure to revive export subsidies.”
The article added that, “But so far, US Agriculture Secretary Tom Vilsack has only talked of buying more commodity for domestic nutrition programs, not renewing discontinued dairy export subsidies, which are highly controversial with Australia.”
With respect to recent political developments, an American Farm Bureau radio Newsline item from yesterday indicated that, “Agriculture Secretary Tom Vilsack has made comments recently that have some farmers worried about the farm safety net.”
“Farm groups are concerned about recent statements from the Secretary of Agriculture saying there is a limited future for direct payments- which are a primary component of the farm safety net,” the Newsline item said.
Yesterday’s Newsline item quoted Farm Bureau Policy Specialist Tara Smith as saying, “[Sec. Vilsack] talked about looking at carbon credits and environmental payments as an alternative to a safety net. We’re very supportive of conservation programs. We’ve been supportive of the Conservation Stewardship Program, of the EQIP Program, but it’s not a safety net. Those are conservation programs and they serve two completely different purposes. So we want to be sure that the safety net stays in place.”
Julie Bosman reported in today’s New York Times that, “Once a crutch for the most needy, food pantries have responded to the deepening recession by opening their doors to what Rosemary Gilmartin, who runs the Interfaith Food Pantry here, described as ‘the next layer of people’ — a rapidly expanding roster of child-care workers, nurse’s aides, real estate agents and secretaries facing a financial crisis for the first time.
“Demand at food banks across the country increased by 30 percent in 2008 from the previous year, according to a survey by Feeding America, which distributes more than two billion pounds of food every year. And instead of their usual drop in customers after the holidays, many pantries in upscale suburbs this year are seeing the opposite.
“Here in Morris County [New Jersey], one of the wealthiest counties in the country, the Interfaith pantry opened for an extra night last week to accommodate the growing crowds. Among the first-time visitors were Cindy Dreeszen and her husband, who both have steady jobs — his at a movie theater and hers at a government office — with a combined annual income of about $55,000.”
Today’s Times article noted that, “And amid the million-dollar houses of Marin County in California, a pantry at the San Geronimo Valley Community Center last month changed its policy to allow people to stop by once a week instead of every other week, since there are so many new faces in line alongside the regulars.”
A news item posted yesterday at the Boston Globe Online reported that, “Energy giant BP and Verenium Corp. of Cambridge said they have formed a 50-50 joint venture to develop and commercialize cellulosic ethanol from non-food feedstocks as advanced biofuels.
“Verenium is focused on developing and commercializing cellulosic ethanol.
“‘The two companies have agreed to commit $45 million in funding and assets to the joint venture company,’ the companies said in a press release. ‘This collaboration is intended to progress the development of one of the nation’s first commercial-scale cellulosic ethanol facilities, located in Highlands County, Florida and to create future opportunities for leveraging cellulosic ethanol technologies.’”
Reuters news reported yesterday that, “Novozymes believes next-generation cellulosic ethanol could be profitable without government subsidies by 2015 in the U.S. if oil rebounds to $80-120 per barrel, executives said on Thursday.
“Prospects for the fuel looked much more grim in Europe, the chief executive of the world’s top maker of industrial enzymes said.
“‘I don’t think it’s going to fly in Europe,’ said Steen Riisgaard in a meeting with journalists. ‘In the U.S., the first generation bioethanol paved the way. In Europe we don’t have the infrastructure. To commit 200 million euros ($251.9 million) for a second-generation plant here with no distribution system is very difficult.’
“Novozymes executives said in 2010 the company will introduce enzymes ready to make cellulosic ethanol, which is produced from crop waste or fast-growing grasses.”
Julie Harker reported yesterday at Brownfield that, “Algae is a credible source for biofuel, according to a professor in the University of Illinois, with many benefits. Professor Lance Schideman in U of I’s Agriculture and Biological Engineering department says among the various biomass feedstocks being researched for alternative fuel, algae has important advantages. Schideman says its fast rate of growth, its ability to clean up water resources and grow on lands not useful for agricultural purposes make it a front-runner among other biomass sources. And, he says the latest research suggests algae could produce far more gallons per acre than soy biodiesel or corn ethanol.
“Schideman estimates producing biofuels from algae will be economically feasible within 10 years but predicts decades longer before it or any other biofuel could replace petroleum.”
And John Davis noted yesterday at the Domestic Fuel Blog that, “A company working to make algae biodiesel commercially mainstream has teamed up with the U.S. government to come closer to that goal.
“Biodiesel Magazine reports OriginOil Inc. inked an agreement with the U.S. DOE’s Idaho National Laboratory to validate and commercialize the Los Angeles-based company’s algae-to-oil technology into the mainstream market.”