Crunch time on the farm

Between seed, fertiliser, land and farm equipment, it can cost millions to fund a modern farming operation. Yet farmers only get paid at harvest time. Across the world, many rely on loans secured against future crops to finance their day-to-day operations. Now, that credit is showing signs of drying up.

In Brazil, the world's second-biggest producer of corn and soybeans, agricultural processors such as Bunge and Archer Daniels Midland have cut back lending after high input prices and falling commodities prices led some farmers to miss loan payments. Such processors account for about 60 per cent of farm finance in Brazil's remote central west – the site of most new plantings since the 1980s.

The extent of the squeeze is unclear. Farmers say lending by processors has all but stopped, while the processors themselves say they are merely tightening at the margins. Whatever the case, the Brazilian government is worried. Amid reports that banks have begun to repossess harvesting machines, it has approved R$13bn ($5.4bn, £3.65bn) in extra funding for farmers. Last week it warned that may not be enough to fix the problem.

Brazil's location in the southern hemisphere means that its planting season has coincided with the worst of the market meltdown, but there are signs that farm credit is tightening in the north as well. In Russia, interest rates on farm loans have jumped in recent months, and in the US, policymakers have begun to warn of softer credit next year as lenders raise loan standards and increase collateral requirements.

What is a farmer to do? Many US farmers have the cash to get by without a big drop in production, but farmers elsewhere may have to save money by using less fertiliser or letting less productive land lie fallow next year. That could hit production at a time when food stockpiles are already at low levels – all the more reason to fear a spike in food prices next year.

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