Rural Banks Feeling Pressure

DTN writer Todd Neeley reported earlier this week that, “The Federal Reserve Bank should consider raising interest rates now as there are signs the overall national economy is ready for increases and low rates may be exacerbating pressure felt by rural banks from a slow agriculture economy, the head of the Federal Reserve Bank of Kansas City said Monday.

“Esther George, chief executive officer and president of the Federal Reserve Bank of Kansas City, told an audience of bankers, farmers and others during an agriculture symposium that the current agriculture downturn has small bankers on notice.

“‘If you’re in the ag community, you are seeing more pressure,’ she said. ‘Ag bankers are looking at their portfolios in the third year of depressed farm incomes. Not all farmers are prepared. I wouldn’t say we’re in a crisis, but we are seeing signs of underperforming loans.'”

The DTN article explained that, “‘At this point the banking industry has stronger capital and is in a better position than it was seven or eight years ago,’ [George] said, although a sagging agriculture industry is one of the pressures being closely monitored by the Federal Reserve. ‘The banking industry does not benefit in a low-interest rate environment.’

“George said while the Fed decided recently not to raise interest rates after a poor May jobs performance that saw just 12,000 jobs added to the economy, June’s bounce-back to 200,000 jobs added is a sign the economy can handle higher rates.”

In a related item, a news release earlier this week from Sen. John Hoeven (R., N.D.) stated that, “Senator John Hoeven, who serves on the U.S. Senate Agriculture and Agriculture Appropriations Committees, requested that the U.S. Department of Agriculture (USDA) replenish Farm Service Agency (FSA) loan programs to ensure that the nation’s producers have access to necessary credit during the current period of low commodity prices.

Farmers across the nation experiencing cash flow issues are increasingly turning to the FSA Loan Program for assistance. The increased need for these programs has resulted in insufficient loan authority to meet accelerating demand. According to the most recent publicly available data from the FSA for Fiscal Year 2016, the vast majority of the loan authority for the Direct Operating Loan Program has been depleted, and the entire amount of loan authority for the Guaranteed Operating Loan Program has been exhausted.

Hoeven wrote to USDA Secretary Tom Vilsack to request that the agency use its existing authority to reprogram funding to the loan programs.”

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