Academic journal article ABA Banking Journal

The Rains Came Too Late: What Ag Banks Are Doing to Offset Effects of the 2012 Drought

Academic journal article ABA Banking Journal

The Rains Came Too Late: What Ag Banks Are Doing to Offset Effects of the 2012 Drought

Article excerpt

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The U.S. Department of Agriculture designated 1,820 counties as disaster areas due to drought, and that number is growing. Heavy rains from Hurricane Isaac's remnants helped in some areas, but for most midwestern farms, the damage was already done and will have far-reaching effects. The United States is the largest grower and exporter of corn, and much of it had withered by early summer. Parallels have been drawn to the great drought of 1988, but today's disaster is happening under very different circumstances.

USDA says farm income has grown 147% since 1988, and farms increased total output by 50% since 1982. Farmers are coming off an especially profitable few years. "Farmers have very good cash reserves, very high equity levels, and the things that farmers own, mostly real estate, [are] in high demand," says John Blanchfield, senior vice-president, ABA Center for Agricultural and Rural Banking.

The Federal Crop Insurance Program will help keep crop farmers with little to no output afloat. Farmers that did have output will fetch high prices for goods.

But this insurance does nothing for livestock farmers. Feed for their animals may now come at a very high price because of lack of supply. Federal programs, plus legislation on the table in Congress, all aim to help.

Ag bankers also are taking aim at the drought. Being proactive is key, and it's a topic that came up at the recent ABA Agricultural and Rural Bankers Committee meeting. …

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