U.S. seek options as farm loan funds run out of cash

[July 26, 2016]  By P.J. Huffstutter

CHICAGO (Reuters) - The U.S. government's $2.65 billion operating loan program to help farmers keep their businesses going has already run out of cash, as requests for federal financial assistance grow amid the worst agricultural downturn in more than a decade, U.S. officials told Reuters on Monday.

As a result, the U.S. Department of Agriculture (USDA) is looking for other money sources "to help bridge the gap in farm operating loans as much as possible until additional funds are made available, either this year or in the next fiscal year," the agency said.

The agency declined to say what other funding it was hoping to leverage for assistance.

Such FSA loan guarantees and direct loans are often considered to be loans of last resort, say banking experts. Without the financial support, some farmers may struggle to survive until the next cash injection in the fall, say rural economy experts.

Last month, the USDA's Farm Service Agency (FSA) told Reuters it had expected funding for these loans or guarantees to be depleted before the program restarts Oct. 1.

As the rural sector struggles with low commodity prices and mounting trade competition, U.S. grain farmers are increasingly relying on the FSA for loan assistance. Agricultural lenders, too, are turning to the agency to help guarantee the loans they are issuing to farmers - whether for operational or real estate needs.

Even with the operational loan program funding depleted, the applications from farmers and the bankers who back them continue to grow.

"At this time, there are already tens of millions (of dollars) in backlog in Direct and Guaranteed operating loan accounts, and that number is expected to increase through the end of the fiscal year," the FSA said in an email.

A combine drives over stalks of soft red winter wheat during the harvest on a farm in Dixon, Illinois, July 16, 2013. REUTERS/Jim Young/File Photo

EMERGENCY FUNDS

Last month, the FSA said it let Congress know it was tapping into $500 million in emergency funding to bolster a related program: its $2 billion guaranteed farm ownership loan program.

Such emergency funding options do not exist for the agency's operating loan programs, the agency added.

Altogether, the FSA's Farm Loan Programs are currently servicing or guaranteeing to cover operating costs and purchase or refinance farm property for more than 113,000 borrowers, totaling nearly $23 billion.

In the past, such lending typically focused on smaller or new farmers with fewer resources. But as economic erosion continues to squeeze Midwest farmers and pressure farmland values, a growing number of agricultural lenders are turning to the federal government, FSA staff said.

(Reporting By P.J. Huffstutter)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.