Agricultural Lending a Bright Spot as Food Producers Need Funds
Released by Dow Jones Newswires
While economic uncertainty is threatening to slow business expansion and loan demand, the banks that begin reporting third-quarter earnings later this week will likely reveal at least one sector where borrowing is on the upswing: food producers.
Rising prices for corn, soybeans and other agricultural commodities are increasing the financing needs of food-related businesses, including meat producers, grain merchants and
makers of breakfast cereals, according to bankers.
The drought that plagued large swaths of the U.S. heartland this summer resulted in another sharp increase in the price of corn and other commodities. Further, "there is already talk of a drought next year," which could make it difficult to rebuild corn supply and push prices down,
says Elizabeth Hund, an agricultural banker at U.S. Bancorp (USB) in Minneapolis.
"It's one thing if I have to buy $8 corn [per bushel] for a few months" as a grain merchant or meat producer, says Ms. Hund, who runs lending to millers, grain merchants and food
companies with $500 million or more in revenue. "But if I have to pay $8 for corn for the
foreseeable future, that changes the business model."