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FDIC Sees Ag Banks As The Next Big Crisis

hypocritexposer

Well-known member
FDIC Sees Ag Banks As The Next Big Crisis

Aug 18, 2009 10:32 AM, By Dave Kohl

Read more articles from David Kohl

I bet this headline will catch the attention of readers from the beltway of Washington, D.C. to the depths of rural America. This is the word on the street circulating in conversations with lenders and producers in agriculture and rural America on my recent Road Warrior travels. While these rumors may be false, perception becomes reality in the boardrooms and loan committees of our lending institutions, which will ripple to producers.

Yes, banks, farm credit and other financial institutions are tightening agricultural credit extension. Credit is still available, but information and collateral requirements from borrowers are increasing and being scrutinized.

For the most part, lending examinations of institutions loaning to agriculture are intensifying, particularly as bank failures in rural areas increase. The fallout from one institution with large ag credits under the eye of examiners was the shot heard around the country in lending circles.

Today, much of the U.S. farm debt is in the hands of the 300,000 commercial producers that generate 75-80% of the revenue. The financial difficulty faced both by lenders and producers is not the result of financing based upon inflated land prices. As revenues have decreased and input costs have risen, margins have been squeezed.

Financial leverage in the protein and livestock sector is the battlefront to watch this fall and winter. This could eventually impact the crop sector, which then could become the next big crisis!



Editor�s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]

http://cornandsoybeandigest.com/davidkohl/0818-FDIC-ag-bank-crisis/
 

burnt

Well-known member
And David Kohl is someone that when he speaks, most people pay attention.

But what he says in your post is hardly surprising if we look at how things have shaped up in the past couple of years.
 

Tex

Well-known member
Many of these agricultural lenders deserve the same fate that the big banks should have had but didn't.

When they loan money in industries where the economic laws that keep them vibrant are broken with no penalty, the system is bound to end up collapsing. Since the individual has little experience with these forces but the banks do on a regular basis, when these kind of laws are ignored, much of the blame can be put on the lenders who keep up scams through their financing.

A change of management that believes they can profit off of short term scams while long term fundamentals are ignored is in order.

Something about "natural law" comes to mind here.

Economic laws are the strategic laws that keep the economy going but have been ignored. Kind of like SH thinking tactics win wars or rules the economy instead of strategy. Doesn't happen.

Tex
 
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