Strong US farm economy faces crisis

The potential problem, economists said, is that strong demand for corn and
other grains has caused prices to reach historic highs.

That has led to
record farmland values and steadily increasing debt as farmers borrow money to
buy more land, finance the higher costs of fertilizer and seed and upgrade their
equipment.

As long as the demand remains, good times for farmers should
continue. But if demand falls, the agricultural economy could
collapse.

Among factors that could affect demand would be:

• A change in
  the federal government’s policy on ethanol subsidies (now estimated at about $6
  billion a year);

• Revisions in the farm bill that would
  lower support payments or,

• An increase in the dollar’s value, which would hurt
  exports.

Farm economists question whether the federal backing for
ethanol will continue in the face of complaints that soaring corn prices are
increasing food costs. Corn is used in most animal feed and is a key ingredient
in myriad other products.

Economists worry that farmers could be tempted
to add debt due to the belief that high commodity prices would
continue.

Those prices have been driven up by a strong demand for corn
and soybeans from countries such as China and India, coupled with the needs of
more than 50 corn-reliant ethanol plants built in the last few years.

As
prices have climbed, so have farmland values. In Iowa, the nation’s biggest corn
producer, the average price of farmland has increased 67% in the past five
years.

Farm debt increases
According to
the US Department of Agriculture, farm business debt is expected to reach $228
billion by the end of this year, an $8 billion increase from last year and a new
record for the fourth consecutive year.

Debt for land is expected to rise
to nearly $121 billion this year, a 2.8% increase.

And the USDA said from
the beginning of 2003 to the end of 2008, total farm debt will have increased by
about $52.8 billion, or more than 30%.

Recent reports filed by
agricultural lenders shows the government’s expectations are playing out in
reality.

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