Financial Stress 



The Role of Public Lenders 



While the farm sector as a whole is weathering the 

 current farm recession quite well, evidence of signifi- 

 cant financial stress for some farmers and agribusi- 

 nesses is emerging. Tenth Federal Reserve Distnct 

 agricultural bankers estimate that as many as 4 per- 

 cent of farmers and ranchers in their trade areas may 

 be forced from business this spnng due to financial 

 adversity. Agricultural bankers also indicate that a 

 much higher proportion of farm and nonfarm loans are 

 being carefully monitored by lenders. Not surprisingly, 

 financial stress is most severe among those farmers 

 and ranchers who are carrying heavy debt burdens — 

 recent entrants and those who have expanded the 

 size of their business using debt capital 



If recovery in both the general and the farm econo- 

 mies is underway by year end, the number of farmers 

 forced out of business by financial adversity — 

 although larger than in recent years — will be limited 

 to manageable levels. However, if recovery is not in 

 sight by that time, a substantial increase is likely to 

 occur in the proportion of farmers and nonfarm rural 

 businesses with severe financial problems. 



Until recently, public sector lending to agriculture 

 was the most rapidly growing component of farm 

 debt. Farmers Home Administration (FmHA) lending 

 — which had grown more rapidly than other types of 

 nonreal estate debt, primarily due to emergency lend- 

 ing programs — accounted for 15 1 percent of all 

 non-real estate farm debt outstanding by the end of 

 1981. FmHA farm real estate lending accounted for 

 8 8 percent of all farm real estate debt outstanding at 

 the end of 1981, as well. The rapidity of growth in 

 such credit outstanding has caused Congress and the 

 current Administration to markedly tighten the qualifi- 

 cation requirements for such credit As a result, farm- 

 ers and private lenders are now essentially left to 

 mutually work out their farm loan problems rather than 

 to rely on government subsidized credit to ease the 

 resolution. 



Export Competitiveness 



U.S farmers enjoyed rapid growth in farm exports 

 during the decade of the 1970s However, export 

 value in fiscal 1982 is expected to decline slightly for 



Chart 2 

 Percent 



Tenth District Farm Loan Rates 



Tenth District 

 Operating Loans 



/ 



1976 



\y 



Percent 

 21 



18 



15 



12 



•77 



•78 



79 



'80 



•81 



•82 



Source Federal Reserve Bank of Kansas City 



62 



