US farm credit okay despite fert costs - lender

15 July 2008 17:23  [Source: ICIS news]

SAN ANTONIO, Texas (ICIS news)--Rising costs of fertilizer and other input were challenging the credit profile of the US agricultural industry, but banks were still willing to lend given the positive outlook for grain values, a credit specialist said on Tuesday.

"We have got an industry that's in for a pretty good ride," said Mark Thompson, vice president of the agriculture finance division of farm services firm John Deere. "Banks are interested in lending to this industry."

The significant amount of private-sector lending available to US farmers was a good sign, especially against the backdrop of the difficulties in the broader credit market that were rooted in the sub-prime mortgage crisis, Thompson told the Southwest Fertilizer Conference in San Antonio.

Fertilizer suppliers and distributors have been concerned about the ability of the agriculture industry to finance input costs, which have shot up significantly.

Thompson said the total debt-to-asset ratio of the US farm sector has improved, mainly reflecting an appreciation of land values.

On the other hand, input costs have tracked rises in grain prices over the past few years, but have not come down during the dips, creating a structural shift in the farm credit picture, he said.

Thompson also predicted a continuing consolidation of the ethanol industry, which has been one of the key drivers of grain prices and growing demand for fertilizer, especially ammonia for corn.

The ethanol industry's margins have been on a downward trend but it can survive, Thompson said.

If all the planned plants were to be built, excess ethanol capacity would hit around 33% of potential production in 2008, up from 20% in 2007 and 10% in 2006, he said.

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By: Stephen Burns
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