The Missouri Farm Service Agency will be out of money for direct operating and guaranteed farm ownership programs by month's end. This would be the first time Dan Gieseke, Farm Loan Chief has experienced such an event.

"We are anticipating that our guaranteed and operating money will be gone in July," Gieseke said during a recent Emerging Issues in Agricultural Lending seminar in Columbia. "It is going rapidly."

LOOKING FOR A LOAN: Agriculture lenders will not have the security of FSA guaranteed loans as money for the program ran out early. Farmers must wait until October to see when additional funds become available.

During the meeting sponsored by the University of Missouri Extension and FCS Financial, lenders and agriculture industry leaders learned that Missouri held out longer than many other states. The U.S. government's $2.65 billion operating loan program for farms for direct loans or guarantees were expected to be depleted in many states by the end of June, about three months before the next year's program restarts Oct. 1.

Agriculture lenders have been using these types of loans to lessen lender risk when making credit available to farmers. Grain prices and a tight agriculture economy had farmers searching for ways finance options.

"Farmers' balance sheet has weakened substantially," Gieseke notes. "Some farmers are asset rich and cash flow poor."

Still some farmers are facing an asset problem. Years of higher commodity prices did not result in more real estate on the balance sheet. Instead, farmers invested heavily in machinery. Now, machinery values are falling.

"It is really tough," he adds. So, many of these farmers turned to guaranteed operating loans to get them through the growing season. According to Gieseke, operating loans were up 22% over last year.

USDA FSA guaranteed operating loans could ensure that the government will back as much as 95% of the farm's operating loan. A promise many agriculture lenders need.

Gieseke says lenders are using the FSA loan program to mitigate risk on current customers with weakened financial position and taking on new customers that other lenders have "cut loose."

Gieseke says it will be up to Congress as to how much money the program will receive next year. "It has been a popular one," he notes. "The government is getting good feedback from bankers and customers on the program."

A recent St. Louis Post-Dispatch article reports that Edwin Elfmann, vice president of government relations at political affairs at the American Bankers Association said applications continue to roll in even from farmers that have not needed FSA loans in the past. The article also noted that USDA officials and banking experts estimated that the backlog of applications by October could be as much as $650 million.