No doubt, these are tough consumer times. Market losses in 2008 alone total more than $6 trillion; the Dow Jones is off by around 40% from its Oct. 9, 2007, high of 14,164.53. Home values continue to seek a floor; unemployment is at a 15-year high; consumer spending is slipping as consumers eschew debt; and many commercial lending firms have grown miserly with capital.

But as tough as things sound for the general economy, agriculture's situation, while hardly rosy, is decidedly more upbeat, experts say. For one thing, lessons taken to heart during the 1980s farm crisis have made for an agricultural sector more wary of debt than the general public. So, while rural borrowers can expect tighter lending requirements and more oversight, capital should be available.

In fact, according to USDA, farm balance sheets are very strong, with U.S. farmers on average boasting 91% equity in their farms and only 9% debt. Ranch-management guru and “Market Advisor” columnist Harlan Hughes says: “A ranch with little or no debt should be able to ride out about any economic storm that the national economy throws its way.”

In addition, small rural lending institutions are less affected by the financial crisis than their larger commercial counterparts, says Kansas State University economist Kevin Dhuyvetter. He says community banks, which are more deposit-based, were less likely than larger banks to be involved in the subprime mortgage debacle that has claimed some of the nation's top firms.

“Small rural banks or the Farm Credit System (FCS) are in good shape. In my conversations with lenders about the expected effects of the financial crisis, they don't feel there will be much impact on small rural lenders,” Dhuyvetter says. He adds, however, that there is likely to be higher equity requirements, more documentation and more oversight for borrowers.

More specifically, he expects cattle-feeding financing to be trickier. “They probably won't be able to borrow as much as previously, and better cash flows and balance work will be required.”

In addition, borrowers can expect differentiated rates to be more strictly applied under the current circumstances than previously.

“There have always been differentiated rates for borrowers whereby better risks get better rates, but those haven't been applied very strictly by some lenders in the past. I think those differentiated rates will be held up more in the current economy and we'll see higher interest rates for some borrowers,” Dhuyvetter says.

A bigger bite on crop growers

As a rule, he expects a heavier impact to be felt by the crop sector than livestock, cattle specifically.

“For crop folks, commodity prices are falling, as is fuel, and to some extent fertilizer. These folks need capital in order to plant next spring; if they don't have the equity, it will be harder to get the financing.

“Meanwhile, livestock producers tend to operate more hand to mouth. They don't lay the money out up front, at least not quite as much, and the prices of feed and fuel have fallen, which will help them considerably,” Dhuyvetter says.

He adds, however, that larger livestock operations, particularly those traditionally using larger commercial banks, are more likely to feel the sting of current conditions.

“The current situation is likely to speed up consolidation across all sectors. When times get tight, someone has to go out of business. Typically, those tend to be the smaller outfits, which lack the economies of scale of bigger outfits.

“But some smaller outfits, those that don't really value their labor and such, and don't borrow much, will be fine. In fact, some of the larger operations, particularly larger dairy and hog operations, might be in a tougher spot, as they tend to work with a lot of credit and are less likely to work with smaller rural banks,” Dhuyvetter says.

His advice to producers is to “stay on top of things. Things are changing so rapidly that the old rules of thumb may not apply.”

As an example, he points to the fact that calf prices traditionally are negatively correlated to grain price, but — thanks to high slaughter prices — calf prices have remained high despite high grain prices. Now corn prices are tanking, as are cattle and calf prices.

“I think we can expect calf prices to drop this fall, but if corn stays down and diesel stays down, calf prices may gain,” he says. “I think there are some great opportunities out there; the problem is that we won't know for sure what they are until two years down the road.”

A modern-day depression?

Bill Helming, Olathe, KS-based economist, concurs with Hughes and Dhuyvetter on agriculture's preferred position in the current financial picture. But he's more bearish overall.

Helming says the U.S. has suffered three previous depressions — 1807-1814, 1873-1896 and 1929-1939. “I think we're in the early stages of the fourth one now in the U.S. and globally. It is going to be tougher for ranchers, farmers and others in agriculture production to borrow on the same basis as they have in the past. A lot of people don't fully appreciate the extent of this serious economic correction now underway. I think we're looking at 3-5 years minimum of a modern-day U.S. economic depression.”

He defines that period as a time of “significantly further rising unemployment (likely reaching 10-15%), very disappointing growth, a highly deflationary environment, sharply lower average annual business profits and therefore substantial further declines in the U.S. stock market (the Dow in time likely declining to the 3,500-4,500 level), and the entire banking and financial system going through an incredibly painful deleveraging process.”

He says America has become “truly drunk” on debt and leverage. From 1957 to 2007, total combined private and public debt went from $693 billion to $53 trillion (78% of which is private debt) or an average annual increase of 15.3%/year. In addition, 80% of the $53 trillion was booked since 1990 vs. an average annual GDP growth rate of 3.3%/year over the same 50-year period.

Yet, he says, “community banks, including FCS, are in pretty decent shape. They didn't participate in this off-the-chart leverage growth of 40:1 — $40 of debt to $1 of equity — and irresponsible financing.”