By MATEUSZ PERKOWSKI
Sharply reduced crop yields caused by the Midwestern drought aren't expected to destabilize the Farm Credit System network of agricultural lenders.
Crop insurance is prevalent among affected grain farmers and smaller yields have driven up prices, which will likely mute the negative effect on farm lenders and credit availability, according to the Farm Credit Administration.
Though the credit quality of the system's overall lending portfolio won't seriously deteriorate, the impact of higher feed costs on livestock producers is expected to take a toll, said Lee Strom, chairman of the FCA, which regulates system lenders.
"The protein sector is going to be particularly hard hit," he said. "It's going to affect every corner of the country."
Across the entire livestock industry, the price of animals is already below the break-even point for producers due to high feed costs, said Lori O'Flaherty, chief credit officer for CoBank, a major system lender that covers the West.
"The drought is bad for all things that eat corn," she said.
For individual livestock producers, the effects will be variable depending on how much of their feed they were able to forward contract before prices rose, O'Flaherty said. Producers who grow much of their own feed or are near ethanol plants that generate distillers grains will also be less affected.
Feedlots will bear the brunt of high feed costs, particularly because cattle supplies have generally dwindled in recent years, which reduces throughput, she said. "I expect that to be a tough business for the foreseeable period of time."