WASHINGTON — Get a room full of economists and financiers together to make projections about the ag economy and it’s akin to nailing Jell-O to the wall.

“We’re bad fortune tellers,” said panelist Joe Brasher, a community bank president from Tennessee.

On Tuesday, March 2, at the National Press Club in Washington, D.C., the Farm Foundation Forum gathered a diverse panel of lenders to discuss the finance and credit environment for agriculture and the food system. Nearly the same panel had convened 15 months ago to discuss the state of the economy as experienced by farm interests. They felt then that the ag sector was fairly immune from the global recession, with a few exceptions. Fast forward to today, they aren’t as sanguine.

“We’re still in perilous times,” said Brasher.

The Farm Foundation Forum panelists included:

Joe Brasher, a community bank president for First State Bank, a $1.3 billion community bank with 26 banking offices across Tennessee.

Jeff Conrad, president of Hancock Agricultural Investment Group, which directly manages $1.2 billion of agricultural investments in the U.S., Australia and Canada.

Paul Ellinger, professor of finance at the University of Illinois.

Bob Frazee, CEO of Mid-Atlantic Farm Credit, which has about $1.7 billion in agricultural loans in Maryland, Delaware and Pennsylvania.

Cornelius (Corny) Gallagher, global agribusiness executive for Bank of America Merrill Lynch, and a member of a national team that coordinates management of the bank’s agribusiness and food products portfolio.

The implications of the recession have had a great effect on the ag sector, said panelists. Sharing the farm lender perspective was Brasher, who lends to western Tennessee hog and grain farmers. Agricultural loans are usually a bright spot to bankers. Traditionally, farmers don’t default, said Brasher. Loans are made, growth is good. But now things have been slowing down.

“Farmers have costly inputs and couldn’t show a profit.” This in turn, meant ag suppliers took a hit. When grain elevators went out of business in his region, said Brasher, “bankers got concerned about the future.”

Brasher says he sees several trends. The first is the shift of responsibility for long-term lending to farmers. As production costs get greater, lenders are telling farmers they’re too risky to lend to, this in turn, means farmers can’t manage risk long-term. “You can’t really do long-term fixed rate loans. Bankers get nervous beyond two years in this market,” said Brasher. While short-term rates are good now, economists are predicting inflation in the future. “Farmers are astute. They’re sensitive to the volatility. They want long-term fixed rates.”

It’s all a bit of a vicious cycle. Farmers need some security to get them through bad production cycles. Greater yields are desired, but to get those, farmers need to invest in their operations, equipment, etc. And of course, it is weather dependent for crop farming. Loans are secured by the value of their land, and in Catch 22 fashion, those “land prices are dependent upon yields.”

All of this uncertainty, said Brasher, is “a killer for business expansion,” and has made farmers go into a “hunker down” mode. He doesn’t see an end in sight to the uncertain times. “The costs of doing business are going to increase,” said Brasher and “the global marketplace is unforgiving.”

Corny Gallagher agreed farming is getting to be a riskier business and will continue so “until the global economy improves.”

Gallagher said the recovery that the USDA is predicting for 2010 in the livestock sector is a forecast based on exports of beef, pork, and dairy to developing countries, but that market is “untested.”

With that gloomy aside, he turned to a more dire problem, in his estimation, that of global water demand.

“Watersheds are strained, oversubscribed,” warned Gallagher. The problems California faces are being experienced in other parts of the U.S. and around the world. Banks, he said, need to consider that there can be no business expansion in agriculture without available water.

Gallagher wasn’t optimistic about the future either. “Global food and water demands will increase and current technology will not meet anticipated demand.”

The next panelist, Bob Frazee, CEO of Mid-Atlantic Farm Credit, gave the perspective of the USDA’s Farm Credit system, a government institution that has $165 million in loans to member owners. Farm Credit was created by Congress to give dependable credit to rural, ag communities. Frazee conceded that 2009 was “a year of great uncertainty,” going further to add that the housing crisis, unemployment, deregulation and oversight, all led to a “perfect storm” to create the mess we’re in now. But he felt that although “the general scene is gloomy,” the Farm Credit system “is still sound.” Capital grew by 13.9 percent, however, he pointed out those gains weren’t made in the ethanol, dairy or livestock sectors.

Frazee said Farm Credit was strong because it is “transparent and government regulated.” He expected the system to remain stable, “We’ve been at this almost a hundred years.”

While lending institutions may remain stable, Paul Ellinger, professor of finance at the University of Illinois, remarked that they’re probably going to stay that way, at the expense of farmers.

“Profit margins are narrowing and risk is increasing,” said Ellinger. “A lot of that risk is being pushed back to producers.”

In his opinion, “the financial health of the consumer is the 600-pound gorilla in the room.” Ellinger showed a map of the U.S., time-lapsed to display how growing unemployment has become a nationwide problem, versus just a regional one several years ago.

Ellinger pointed out that most of the household income for farm families comes from off-farm jobs. Many of these jobs are being lost in the current economy. “Non-ag income loss is a big issue.”

Ellinger’s take-away message was that this economy is going to lead to a sharper division of wealth in the U.S. “There are going to be more winners — and more losers.”

Panelist Jeff Conrad, president of Hancock Agricultural Investment Group, which directly manages $1.2 billion of agricultural investments in the U.S., Australia and Canada, was optimistic about ag investments — so long as they aren’t owned by farmers. His company buys up farmland, leases it back to farmers, and grows commodity crops on it.

“Investors like the U.S. farm sector. It’s the shining star in their portfolios,” said Conrad. Speaking of his investors, he noted: “We work with people who know nothing about farming.”

“Farmland is historically a good investment,” said Conrad and boasted that his fund has gotten 11 percent returns on it.

“We buy land just to farm it. We’re not into livestock though, just row crops.”

To Conrad, the future is farm consolidation by domestic and foreign investors.

“Outside capital will come in and buy this land,” said Conrad. “It will lead to consolidation. This sector looks very attractive.”