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.

Finance ADM, Cargill, CoBank, lending

Recently our good buddy Winston mentioned a few stock ideas in a discussion about Walgreens. He mentioned that Archer Daniels-Midland (ADM: chart, web, Y!) was his buy-it and forget-stock. So I thought I’d dig into the numbers a bit to see if I agree.

Archer Daniels procures, transports, stores, processes, and merchandises agricultural commodities and products primarily in the United States. They operate in three segments, namely oilseeds and corn processing, and agricultural services. Effectively they refine seeds and beens into vegetable oils for the food (i.e. salad dressing) and feed industries.

The AG-services side of the company engages in buying, storing, cleaning, and transporting agricultural commodities, such as oilseeds, corn, wheat, milo, etc, and reselling these commodities to the agricultural processing industry.

An interesting, yet lightly publicized aspect of Archer Daniels is their interest in processing corn. For those of you who regularly read The Corner Office Blog, you know that I view the ethanol boom as nothing more than a farce. However, if you can make money in the face of a farce, by all means, run with the bulls!

Financial Summary

For the most recent quarter, Archer Daniels first quarter (FY08) net sales increased to $12.83 billion, up 35.8% from $9.45 billion for the same quarter in FY07, stimulated by commodity prices, and strong product demand in processing and AG-services segments. Oilseeds Processing sales increased 42.4% to $4.61 billion, boosted by higher prices and volumes due to strong demand for vegetable oil and soybean meal, and the higher average selling prices of fertilizers and oilseeds exported from South America. Corn Processing sales increased 12.6% to $1.52 billion, due to higher average selling prices in sweeteners and starches despite lower sales volumes and lower average selling prices for ethanol, whose current capacity exceeds customer demands.

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Alternative Energy, Stock Thoughts ADM, archer daniels, food and grain, grain processing, Stock Thoughts