Roller Coaster Economy Tightens Credit for Wheat Growers

PULLMAN, Wash. -With dim prospects for higher prices on the near horizon, some eastern Washington wheat growers may be forced to sell their crops at less than break-even prices to pay off loans they obtained to plant this year’s crop.

“Banks are less inclined to stretch out loans to refinance in this environment,” said Douglas Young, a Washington State University agricultural economist. “If you are under pressure to make payments on last year’s loan and you’ve got to make payments, then you probably will have to sell.”

The price for soft white wheat plummeted from $15.12 to $4.70 per bushel between mid-January and mid-October, a 68-percent decline. That’s more than double the percentage drop on the Dow Jones Average during the same period.

Wheat prices in the $4.50 to $5 range are about $2 to $3 less than it costs to produce a bushel of wheat this year, according to the U.S. Department of Agriculture.

While that’s true for many growers, that’s not universally the case. “Well capitalized growers can break even at $4.50,” Young said.

Those same growers haven’t had much trouble getting crop loans. “Growers who’ve got pretty much everything paid for and have capital they can tap to make repayments will have an easier time getting loans,” Young said.

They also might be able to keep their wheat in storage and use it as collateral while they wait out the recovery in wheat importing nations, he said.

While most of the financial institutions farmers rely on for loans have not been affected in a large way by the crisis on Wall Street, the financial situation is making it tougher for some farmers to qualify for loans they need.

“Credit will be rationed to stronger borrowers,” Young said. “Two things are going to be key for farmers to get credit: collateral and how wise they have been in their marketing decisions.

“If a farmer took advantage of the high wheat prices in 2007 and early 2008 and used some of the proceeds to pay off debt or set aside funds for a rainy day, that person is going to be in a favored position.

“A grower who contracted his or her wheat earlier this year for $8 to $10 per bushel for wheat harvested this fall, is going to be in a much stronger borrowing position than one who has ridden the market to below $5.

“In my 40 years as an agricultural economist, I cannot remember a period where marketing management–and a bit of luck–has been more important than during the past two years,” Young concluded.

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