US farmers face tighter credit conditions as they approach the next crop season, the Federal Reserve Bank of Kansas City said on Tuesday, in the first concrete sign that the financial crisis was affecting agricultural markets.
In its quarterly survey of farming credit conditions, the Kansas City Fed said agricultural lenders were reporting tighter credit standards and warned of a further reduction in the availability of funding.
However, demand for loans remains strong as farmers require credit to pay for fertilisers and seeds. “Almost 20 per cent of respondents raised collateral requirements,” the bank said, referring to the guarantees that borrowers have to provide.
The bank also forecast a reduction in agricultural capital spending, owing to higher input costs and lower crop profitability.
On Tuesday Chicago Board of Trade December corn traded 3 cents lower at $3.82¾ a bushel, down 50.6 per cent from its record high of $7.75 in June.
CBOT December wheat gained 3¼ cents at $5.37 a bushel, down almost 60 per cent from this year’s peak of $13.34¾ in February.
CBOT January soyabeans lost 11 cents at $8.95½ a bushel, down 46.2 per cent since hitting an all-time high of $16.63 in July.
JPMorgan said a contraction in supply would help agricultural commodities outperform energy and base metals markets next year.
Lewis Hagedorn, JPMorgan analyst, said: “Even allowing for a more conservative demand estimate in light of slowing global economic conditions, corn and soyabean supplies will struggle to meet demand, keeping inventories low.
“Lower prices could even prompt a contraction in production.”
The comments from the Kansas City Fed underscored a warning delivered this month by the United Nations’ Food and Agriculture Organisation, which said the world might face a repetition of this year’s food crisis as the credit crunch hit agricultural markets, forcing farmers to cut production.
The FAO said: “Under the current gloomy prospects for agricultural prices, high input costs and more difficult access to credit, farmers may cut their plantings, which might again result in a tightening of world food supplies”.
In oil trading, US crude prices hovered round $55 a barrel amid continuing concerns about the outlook for demand.
Nymex December West Texas Intermediate touched a low of $54.13 before recovering to trade 55 cents higher at $55.50 a barrel.
ICE January Brent gained 37 cents at $52.68 a barrel, recovering from a low of $51.25.
The Centre for Global Energy Studies, based in London, said a year-on-year decline in global oil demand in 2008 and 2009 was now “a very real possibility for the first time for 25 years”.
It said: “With people fearful for their jobs and income prospects, a 25-30 per cent fall in gasoline prices will not change their new driving habits.”
The CGES poured cold water on the prospect that Opec could stabilise the market by agreeing further supply cuts when it meets on November 29, saying there was “little point in pledging new output cuts until those already agreed are implemented”.
Gold rose 0.6 per cent to $740 a troy ounce.
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