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Credit Crisis Is Not So Funny Down On The Farm

Published: Monday, 7 Apr 2008 | 1:57 PM ET
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Barn
AP

Even in a farm boom, lending is tight. Brett Crosby is a cowboy with an MBA. He runs a Wyoming cattle ranch and also operates Custom Ag Solutions, a firm that helps do agricultural risk management.

He tells me one local banker whom he knows well says federal officials have increased their scrutiny so much that even with lower interest rates, these small banks are lending less now than they were during the higher-rate environment of a year ago. Crosby says the banker tells him, "The Fed's rate cut is all smoke and mirrors. They are keeping such a tight rein on us that we just aren't making any new loans." Regulators wrote down this bank's portfolio, giving it less lending capacity.

Whom does it loan to? Not first-time home buyers trying for a subprime loan. Most of the loans are to the agriculture industry, which would seem to be one of the safest bets in the current economy.

Crosby says established operators are still able to renew credit. The problem is for newcomers, or when an established operation wants to expand, which a lot of them do right now.

Crosby points out that getting loans in a timely manner is becoming a problem. "Collateral values are being documented by certified appraisals before loans can close, thus slowing ag borrowers' access to operating capital at a key time in the planting season."

Most would probably agree that a certified appraisal is a good thing, especially as some suspect farm real estate may be the next bubble. But it's interesting to see how the subprime fallout is affecting everything, even the food you eat.

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