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Government Loan Program Runs Dry, Putting Squeeze on Farmers

In agricultural communities across the country, financial worries are growing as quickly as farmers' unprofitable crops.

They're suffering from the worst agricultural slump in more than a decade — and a major source of federal assistance has run dry.

In Durant, Iowa, a rural town of less than 2,000 residents, the punishing combination of economic factors, including a plunge in commodity and farmland values, is bringing in more farmers than usual to lenders at Liberty Trust and Savings Bank, said bank vice president Michael Hein.

"Right now, we're dealing with a depression in all of our commodities, livestock, and grains. We have corn and beans that are both priced below production costs, and our cattle market has taken a downturn," Hein told NBC News. "It's an across the board situation right now."

Fall harvest
Duane Cook drives a combine through a corn field owned by Dave Heiderscheit in rural Balltown, Iowa, in October 2015. AP

The U.S. government normally provides a safety net for farmers through the Farm Service Agency in the U.S. Department of Agriculture. The agency offers two types of financial aid: loans given directly to the farmer and a federal guarantee to loans from banks.

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But this year, due to high demand, the funding has already been drained — with nearly two months still to go before the next fiscal year.

It's not unusual for the $2.65 billion farm operating loan program to run out of money as Sept. 30 approaches. But it isn't typically depleted this early.

"Those programs have reached their borrowing limit," said Dale Moore, executive director for public policy with the American Farm Bureau Federation, the nation's largest general farm organization, adding that the FSA "tends to be viewed as a lender of last resort."

And there is little hope that the FSA's budget for next year will look much better.

"Congress doesn't look at individual needs," Kentucky state Sen. Paul Hornback, a farmer and chairman of the Senate's agriculture committee, told NBC News. "In any of the large programs, they pretty much go off what they did last year, and increase it by the cost of living."

That's not going to cut it if trends continue — and if farmers suffer, that "eventually is going to have an impact on consumers," Moore said. Supply may go down, and prices up.

"This is a matrix of impacts," he said.

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FSA loans typically go to farmers who are just starting out or who have fallen on particularly tough times. Steve Apodaca, senior vice president of agriculture and rural banking at the American Bankers Association, said just because the FSA funds have run out, that doesn't mean farmers in need shouldn't apply.

"Our suggestion to all borrowers in those situations is they continue to provide the applications, because if the FSA doesn't know there's a demand, then they can't request that the loan programs be increased," he told NBC News.

In a statement, the FSA said it was hoping to come up with additional funding.

"USDA is exploring leveraging other authorities to help bridge the gap in farm operating loans as much as possible until additional funds are made available," it said.

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In total, the FSA farm loan programs service or guarantee more than 113,000 borrowers, for nearly $23 billion.

There are smaller scale options for farmers to look into: In Massachusetts, for example, the non-profit Community Involved in Sustaining Agriculture just announced an emergency farm fund for farmers in need. And even within the USDA, there are grants rural business owners can apply to.

"The worst-case scenario would be that the program is completely out of money and has to shut down, and we have to try and find other ways to help our producers get that crop on the ground," Moore said. "For a lot of farmers, this is one of those times that they have to be eternally optimistic that next year is going to be better."