.floatimg-left-hort { float:left; } .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;}
As if Iowa farmers didn’t have problems enough with early snows catching them while corn was still standing in fields, they might encounter a cold shoulder when it comes time to borrow money to plant their 2010 crops.

Livestock producers will come under the closest scrutiny, lenders say, because they have been hit by high feed prices and reduced demand. And although a drop in corn prices through September might have reduced some of their overhead, those costs haven’t declined enough to make up for high feed and fuel costs last year that eroded their equity positions, an Iowa State University economist said.

But problems await grain farmers, too, even though the costs of their inputs, especially a key form of fertilizer, have dropped dramatically since spring.

In addition, a key ingredient for farm lending, the basic value of the land where they grow their crops and raise their cattle and hogs, has dropped for the first time in a decade.

“I think lending for 2010 is going to be a little different than at the start of 2009,” said Leslie Miller, who oversees farm lending for Iowa State Savings Bank in Knoxville.

The 2 percent drop in land prices, to $4,371 an acre as of Nov. 1 from $4,469 in 2008, will be reflected in a borrower’s net worth, even though it won’t necessarily be used as collateral on loans for next year’s crop, Miller said.

“There has been some lost collateral value and margins are much tighter,” Robert Jolly, an Iowa Sate University economist, said. “But the declines are in percentages from big highs.”

For example, the U.S. Department of Agriculture reported last month that farm income is expected to drop to $57 billion this year, a $30 billion decline. Still, the income figure remains the eighth largest in history, the department said.

And though input costs dropped in 2009, they remained at the second-highest level ever, the USDA said.

In the “you win some, you lose some” column of the farm ledger, even the drop in land prices sends a mixed message.

The decline this year came on the heels of 10 years of land inflation. In 1999, the average price of an acre of Iowa farmland was $1,781.

Miller said the upward spiral in land prices could not be sustained by the value of the crops the land was producing.

“Land prices, with the volatility in crop prices, was not sustainable,” she said. “You don’t have the predictability there that you had two years ago (when ethanol was driving up the price of corn). Either crop prices have to go up or land prices have to go down,” she said.

The increase in land prices was a “paper gain, not an earned gain,” Miller said.

Iowa State Savings Bank, like many community banks in Iowa, has been more conservative in assessing the value of farmland, Miller said, linking it more closely with the profits or losses it produces, rather than its market value.

If a lender pegs the drop in land prices to a decline in net worth, a borrower could have trouble obtaining a loan for next year’s crop, a few head of livestock or a $300,000 combine.

“National lenders, whose loans are based on broad averages, will see the drop in net worth as an indication that a farmer has suddenly become a credit risk, rather than looking at the trends that triggered the decline,” Miller said.

Community banks provide about half of all lending to commercial agriculture, Jolly said.

In Iowa, agriculture loans made up 15.5 percent of a total of $38 billion in loans this year, a slight decrease from 2008 in both the number of agriculture loans and total loans, according to the Iowa Division of Banking.

It is unlikely that farm lending will encounter the same deep freeze that has confronted commercial developers, Jolly said.

“Community banks, with few exceptions, didn’t participate in some of the dodgier investments” that have led to the “malaise” in the financial sector, he said.

Tom Gronstal, superintendent of the Iowa Division of Banking, said he doubts that corn and soybean farmers will encounter much difficulty in obtaining loans for next year’s crops.

“Row crop producers, I can’t see any significant issues for them; livestock production is another story,” he said.

Miller said that it will not be impossible for farmers to obtain loans, just more difficult for some, especially those with large debt loads.

“What really has happened is that because of those very expensive inputs (from a year ago) a lot of farmers lost money on every acre of land they raised, so that’s going to weigh in; it’s going to be a much more cautious atmosphere,” she said.

Banks lend to farmers based on what they will produce in the future, not what their performance was last year. Meaning that years of big profit leave little impression on a lender working out next year’s loan.

“Right now there are not a lot of troubled ag loans. They have been the bright spot in the Iowa economy,” Miller said. “The big caution is it depends on what happens with grain prices from here on out.”