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Steady deterioration seen in farm finances

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MORE MONEY HEADED TO FARMERS: USDA announced millions more of pandemic assistance for farmers, including targeted funds for biofuel and livestock producers.
Farm income down, and farmers being required to put down more collateral on farm loans.

Although the U.S. Department of Agriculture may be forecasting an uptick in farm income, on the ground, agricultural lenders continue to report a decline in farm income compared to year-ago levels and ongoing stress in the countryside. The Federal Reserve Banks of Chicago, Ill.; St. Louis, Mo.; Kansas City, Mo., and Minneapolis, Minn., recently released updates regarding farm income, farmland values and agricultural credit conditions from the third quarter of 2019.

Ani Katchova, associate professor and Farm Income Enhancement chair at Ohio State University, said USDA’s forecast for farm income in 2019 is up about 5% from last year, but this is with reductions in crop receipts that mostly would be compensated by increases in direct government payments as well as other farm-related income, including crop insurance and prevented planting payments.

She noted that bankruptcy and loan delinquency rates are still near historic lows, with agricultural loan delinquency rates at 2.05% and roughly two bankruptcy filings per 10,000 farms.

Katchova said low interest rates are helping give farmers the ability to obtain more loans as well as be able to repay the loans while not causing greater financial stress.

“However, what’s working against is also the low incomes and the tightening of the credit conditions and the more pessimistic outlook from lenders,” she said, adding that this has placed additional restrictions on the demand for loans.

Kansas City

The Federal Reserve Bank of Kansas City, in its latest "Ag Credit Survey" -- written by Nathan Kauffman, vice president and Omaha, Neb., branch executive, and Ty Kreitman, assistant economist -- noted that demand for farm loans remained strong and continued to increase, but the pace of growth slowed from previous quarters.

“The strain on farm finances in the district has led to steady deterioration of agricultural credit conditions. The rate of farm loan repayments continued to decline at a pace similar to recent quarters, while the number of renewals and extensions remained high,” Kauffman and Kreitman wrote.

The Kansas City region, which represents parts of Missouri, Colorado and Wyoming, Nebraska, Kansas and Oklahoma, reported that steady deterioration of farm finances led to a modest amount of borrowers selling assets to improve liquidity. “Similar to last year, about half of district bankers indicated they expect at least 5% of their borrowers to sell assets before year-end. Almost all survey respondents indicated they expect some borrowers to liquidate assets in coming months -- a sign of broad impacts from persistent weaknesses in the sector and long-lasting pressure on farm finances,” the survey noted.

St. Louis

According to the latest "Agricultural Finance Monitor" published by the Federal Reserve Bank of St. Louis, bankers expect farm income to decline again next quarter compared with the same period last year. The survey was conducted Sept. 15-30. The results are based on responses from 20 agricultural banks within the Federal Reserve's Eighth District, which includes all or parts of seven Midwest and mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

Measuring bankers' assessments of farm income indicated that proportionately more lenders continue to report year-over-year declines in farm income. “The low price of grain and the falling price of cattle are going to make it hard on low-leveraged farmers and almost impossible for young, highly leveraged farmers,” a Missouri lender said. Farm household spending and capital spending also were reported to have declined in the third quarter relative to the same quarter a year ago.

This quarter’s survey asked two special questions: one about loan repayment expectations and another about the type of workout arrangement made for borrowers having financial difficulties. Regarding the first question, bankers expect to see the largest increase in repayment problems for operating lines of credit. Regarding potential workout arrangements, borrowers collateralizing unpaid portions of their operating lines of credit or making a long-term workout with their existing lenders garnered the largest responses from the bankers.


David Oppendahl, senior business economist at the Federal Reserve Bank of Chicago – which represents Iowa, Wisconsin, Michigan and parts of Indiana and Illinois -- penned in the latest "Ag Letter" that for the third quarter of 2019, agricultural credit conditions for the district were yet again worse relative to a year ago. For the July to September 2019 period, repayment rates on non-real-estate farm loans were lower than a year earlier. The index of loan repayment rates was 70 in the third quarter of 2019, as 2% of responding bankers observed higher loan repayment rates than a year ago and 32% observed lower rates. Furthermore, renewals and extensions of non-real-estate agricultural loans were higher in the third quarter of 2019 relative to the same quarter of 2018, with 30% of the responding bankers reporting more of these and just 1% reporting fewer.

For six straight years, repayment rates for non-real-estate farm loans have been lower each quarter relative to the same quarter of the year before, while loan renewals and extensions have been higher, Oppendahl stated. Collateral requirements for loans in the 2019 third quarter were tighter than in the same quarter of last year, as 21% of the respondents reported that their banks required more collateral and 1% reported that their banks required less.

Survey respondents in the Chicago district expect loan repayment rates to decline this fall and winter versus a year ago: Just 6% of the responding bankers are forecasting a higher volume of farm loan repayments over the next three to six months compared with a year earlier, while 33% are forecasting a lower volume. In addition, 54% of the responding bankers anticipate an increase in forced sales or liquidations of farm assets owned by financially distressed farmers in the next three to six months relative to a year ago (only 2% anticipated a decrease). The district's non-real-estate farm loan volume for October through December 2019 is expected to be higher than for the same period of 2018. Similarly, the volume for district farm real estate loans is projected to be higher in the fourth quarter of 2019 than a year earlier.


According to the latest "Agricultural Credit Conditions Survey" from the Federal Reserve Bank of Minneapolis, agricultural lenders saw falling incomes push down the rate of loan repayments, while renewals and extensions increased. Compared with a year earlier, 44% of respondents reported a decrease in loan repayment rates, while 51% reported that rates were unchanged. Nearly half of lenders (49%) stated that the number of renewals or extensions increased, while most of the remainder said renewal activity was unchanged. Only 3% reported a decrease in renewals.

Collateral requirements on loans have held steady, according to 83% of lenders surveyed, with the balance reporting increases in collateral requirements. Fixed and variable interest rates for operating, machinery and real estate loans all decreased from the previous quarter.

TAGS: Business
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