Depending where funds are sourced, I have suspected ag lenders/banks will face the same situation as other financial firms (and even countries such as Iceland): lack of ability to lend due to eroded capital.
On the other side of the world, it's happening.
The financial meltdown that started on Wall Street is now hurting farmers in Siberia, threatening a Russian agricultural revival that the United Nations says is needed to help avert a world food shortage.
Cash-strapped banks have cut funding to an industry already reeling from plummeting grain prices and soaring borrowing costs. The collapse of the stock market has closed off the other main money source for Russian agricultural companies, which produce nine percent of the world's wheat.
``Russian farmers may need to repay as much as $10 billion of loans by the end of the year,'' said Arkady Zlochevsky, president of the Russian Grain Union. ``Many farmers probably won't be able to borrow money for the spring sowing.''
Russian growers are putting on hold billions of dollars of expansion into vast swathes of Siberia, suggesting the harvest will weaken after this year, the best since the collapse of the Soviet Union. The UN Food and Agriculture Organization had estimated in March that Russia could double grain output by 2016.
Loan rates for farmers have jumped by half in some cases to more than 20 percent in the past few months, Zlochevsky said in an interview in Moscow. At least seven companies have abandoned planned share sales as the benchmark Micex Index in Moscow lost more than half its value since August. [More]
The idea any corner of finance anywhere will escape this black hole of illiquidity is questionable. Even if your bank is strong, there will be immense competition for loan funds. That means a higher interest spread will be possible for banks, even as the prime drops. And that's just the first complication I can think of.
Small wonder we will all soon be banking with Uncle Sam.