Schafer Says Credit Crisis Could Hurt Ag Production Next Year (POT, AGU, DE, more..)

October 1, 2008 1:09 PM EDT

The US Agriculture Secretary, Ed Schafer, today made comments regarding the credit crunches impact on agricultural production next year.

Following a meeting with employees of the Department of Agriculture, Schafer said, "There's a possibility that we certainly could see tight credit having an effect on agricultural production. The costs of farming operations today are huge, and that backs up to the banks that have balance sheets that are tight, it backs up to elevators that have credit stretched out themselves."

The comments from the USDA regulator are certainly sobering; farmers are already facing the highest costs in history, and a tightening in the credit markets will make it extremely difficult for them to receive loans in order to pay for their operations. According to the USDA, farm expenses are expected to rise 16% to $294.8 billion this year.

Farmers will be directly pinched as fertilizer and seed companies such as Potash (NYSE: POT), Agrium (NYSE: AGU), and Mosaic (NYSE: MOS) are forced to raise prices for their products due to global supply concerns, rising fuel prices, and, of course, the impact from expensive borrowing. Further, equipment manufacturers such as Deere (NYSE: DE) will also experience difficulty in getting loans to finance their businesses, effectively also passing on cost increases to farmers.

Investors seem to be responding to the development today: the popular ag names like Potash and Agrium are seeing downside despite broader markets which are now moving towards positive territory. Manufacturers like Deere are also pushing lower today. Shares of Potash most recently traded at $129.54, down 1.7% from yesterday's close, Agrium is down 0.05% to $56.05 and Terra Industries (NYSE: TRA) shares are down 0.8% to $29.17. In the construction and ag machinery industry, Deere is down 2.2% to $48.40 and AGCO (NYSE: AG) is down 1.9% to $41.79.

These ag stocks have moved sharply lower over the last week amid credit spreads that widen to never before seen levels. Since the market open on September 25, shares of Potash have fallen 20%, shares of Agrium are down 28% and Deere stock has slide 18%.

Potash Corporation of Saskatchewan, Inc. engages in the production and sale of fertilizers, and related industrial and feed products in North America.

Agrium, Inc. produces and markets agricultural nutrients, industrial products, and specialty products worldwide, as well as involves in the retail supply of agricultural products and services in North and South America.

Deere & Company engages in the manufacture and distribution of products and services for agriculture and forestry worldwide.

Related Categories

Corporate News
Insiders' Blog
Trader Talk

Stocks Mentioned

Related Entities

• Raising Prices

Comments

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?