The U.S. government’s $2.65 billion operating loan program for farms is close to running out of funds as cash-strapped grain farmers and cautious banks have rushed to shore up capital to survive the industry’s worst downturn in more than a decade.
The U.S. Department of Agriculture’s Farm Service Agency funding for direct loans or guarantees are expected to be depleted by the end of June, about three months before the next year’s program restarts Oct. 1, USDA officials told Reuters on Tuesday.
It is the second year in a row that money has dried up before the end of the fiscal year, the latest sign of a credit crunch as commercial banks and lenders have reined in lending to farmers, already hurt by sinking grains prices.
That has forced farmers to turn to federal help to ride out the global grains downturn.
Commercial banks and lenders have also scrambled to get guaranteed operating loans, which ensure that as much as 95 percent of the farm’s operating loan will be backed by the government.
A recent rebound in crop prices, with soybeans up 37 percent since early March and corn up 23 percent, has not cooled demand.
These FSA loan guarantees and direct loans are often considered to be loans of the last resort, say banking experts. Without the financial support, some farmers may struggle to survive until the next cash injection in the fall, say rural economy experts.