CoBank is one of the largest American cooperative banks serving rural America. Recently, the company said its shareholders approved a plan to issue up to $250 million in preferred stock in 2008 or 2009.

The stock may be issued in one or more issuances, the firm said, and in addition, CoBank shareholders also agreed to amend bank bylaws to increase the amount of preferred stock it can issue to $1 billion from $500 million.

The bank has already issued $500 million in preferred stock since 2001 along with $500 million in subordinated debt.

Why would a lending institution that lends money to the likes of Cargill and Archer Daniels Midland (ADM: chart, web, Y!) need to increase the allowable issuances to a whopping $1 billion? Perhaps it’s because they are out of money.

Rumor on the Street is that CoBank is talking with their clients, in particular Cargill, and letting them know that they will be cutting back on their lending. Even further, the bank may be forced to liquidate some of the larger speculative positions their clients are taking on.

In a related rumor, Montreal Bank is taking up a similar position, approaching FC Stone (FCSX: chart, web, Y!) and Man Financial (MF: chart, web, Y!) about forced liquidation and dried up lending.

The stock price reveals a lot, but the volume in these stocks reveals a lot more. Volume in FCSX more than tripled in the last few days. This high volume isn’t due to the Fed rate cut, the Bear Stearns solvency issue, or the general financial sector hit. These charts are very revealing!

I would have thought lending to the agricultural sector would be fairly robust considering the price of wheat and corn. The fact that these lenders are forcing liquidation tells me we haven’t seen the full reveal of the woes in the financial sector.

Tags: ADM | Cargill | CoBank | lending

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