Farm Credit Getting Tighter as Bad Loans Grow, Regulator Says

WASHINGTON-(Bloomberg)--The cost of credit in rural areas is rising as lenders become more cautious in extending loans to farmers, according to Leland Strom, the chief executive officer the U.S. Farm Credit Administration.

Nonperforming loans grew by almost $500 million to $3 billion in the first quarter, indicating a need to lend more conservatively, Strom said today at a congressional hearing in Washington. Still, the U.S. Farm Credit System remains well- capitalized, with a 7.9 percent increase in net income to $2.9 billion last year, Strom said.

The lending environment "will be more challenging than the system has faced in many years," Strom said. The FCA is an independent agency that regulates the banks and other entities of the Farm Credit System, the largest agricultural lender in the U.S.

Agricultural producers have so far fared better than other parts of the U.S. economy during the global financial crunch, which has cost banks and businesses worldwide more than $1.47 trillion in writedowns and credit losses. Debt loads for agricultural producers are the lowest in at least 50 years, according to government data.

Low leverage levels have helped farmers withstand declines in wheat, corn and soybean prices, according to Bob Stallman, president of the American Farm Bureau Federation. The commodities were all down at least 23 percent from last year's records, as of yesterday.

Today's hearing was held by the House Agriculture subcommittee overseeing farm lending. Also scheduled to testify was Michael Gerber, president and chief executive officer of the Federal Agricultural Mortgage Corp. Farmer Mac, as the government-sponsored company is known, helps U.S. farmers obtain long-term financing.