Banks Are Tightening Credit for U.S. Farmers

Jesse Newman reported in today’s Wall Street Journal that, “Banks are tightening credit for U.S. farmers amid a rise in delinquencies, forcing some growers to turn to alternative sources of loans.

“When U.S. agriculture was booming this decade, banks doled out ample credit to strong performers and weaker growers alike, said Michael Swanson, an agricultural economist at Wells Fargo & Co. But with the farm slump moving into its third year, banks have become pickier, requiring some growers to cough up more collateral and denying financing outright to some customers who need it to pay for seeds, crop chemicals and rent. Farmers this year have been grappling with low commodity prices, mounting debt and weaker incomes.”

Ms. Newman explained that, “With traditional bank loans harder to come by, farmers are turning to sources like CHS Inc., a large farmer-owned cooperative in the U.S., which operates grain elevators and retail stores across the Midwest. CHS said its loans to farmers increased 48% in both number and volume in the 12 months to March and have more than doubled since 2014.

“It ‘suggests there are many farmers struggling to obtain financing,’ said Randy Nelson, president of the co-op’s financing subsidiary, CHS Capital.”

The Journal article added that, “A recent rally in some U.S. agricultural markets has brightened the picture considerably for growers of crops like soybeans, but many farmers still are facing losses this year thanks to a large buildup in global grain stockpiles that has pressured prices for other U.S. commodities like corn and wheat.

“The Chicago Fed earlier this year said the volume of the district’s farm-loan portfolio with major or severe repayment difficulties hit 5% in late 2015, which compares with 2.9% a year earlier and is the highest in more than a decade. Illinois banker Eric McRae said repayment problems are deemed serious when growers carry debt from year to year or are 90 days delinquent on loan payments.” [Note that more information on the farm economy from the Fed is available here].

Today’s article also noted that, “Nathan Kauffman, Omaha branch executive at the Kansas City Fed, said lenders in his district are working to restructure debt for borrowers but can’t do so indefinitely. Mr. Kauffman said, ‘2016 is going to be a critical year.'”

Meanwhile, a news release from the Senate Agriculture Committee yesterday indicated that, “U.S. Senator Pat Roberts, R-Kan., Chairman of the Senate Committee on Agriculture, Nutrition and Forestry, today held a hearing on the U.S. livestock and poultry sectors.”

Tracy Brunner, the President of the National Cattlemen’s Beef Association, noted at yesterday’s hearing that, “2015 saw a record high for cattle prices, but those soon started back down due to several reasons. One factor was the increase in overall protein supplies. In 2015, U.S. per capita red meat and poultry supplies increased by nearly 10 pounds per person. In addition, the strong U.S. dollar impacted our ability to ship beef to our international customers. All of this additional supply puts downward pressure on the markets. This has been compounded by the break in the drought throughout most of the cattle producing areas of this country which has resulted in more abundant and cheaper feed, and the resulting decision by many producers to increase the size of their herds. Larger supplies always lead to lower prices, but we are used to the ups and downs of the cattle cycle. In order to manage this cycle, we need risk management tools that work.”

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