Debt, Delinquencies are Rising, Raising Fears of Broader Turmoil in U.S. Agriculture

Reuters writer PJ Huffstutter reported yesterday that, “A third-generation farmer, Matt Gibson eyed a big expansion of his family’s business in late 2011, as grain prices soared in a searing Midwestern drought.

“By August of 2012, days before corn prices peaked, the Gibson family had borrowed nearly $18 million in a series of loans from Chicago-based BMO Harris Bank.

“The Gibsons took on more debt after the drought broke the following spring, sending grain prices tumbling. By 2015, with grain prices at half their peak, BMO and others creditors sued the Gibson businesses seeking to recoup more than $30 million.”

The article stated that, “The travails of Matt Gibson, 39, and his family are emblematic of a new class of ‘go-go farmers,’ a term coined by fellow Midwest growers and agricultural economists. Many, like the Gibsons, borrowed heavily to expand their farms, then borrowed more in an effort to plant their way out of a commodity price crash, according to dozens of interviews with Midwest farmers, lenders and agriculture experts.

Their distress could foreshadow broader economic turmoil in the grain sector, which includes corn, soybeans and wheat.”

The Reuters article noted that, “A Reuters analysis of federal data on agricultural lending in the grain-producing ‘I-states’ – Illinois, Indiana and Iowa – shows that delinquency rates on farmland and production loans are rising sharply.”

Graph From Reuters

Ms. Huffstutter explained that, “The total dollar amount of nonperforming bank farm loans in the three states shot up to $288.2 million in the second quarter of 2016, up from $132.5 million in the second quarter of 2013, the year after corn and soybean prices peaked, according to data from the Federal Deposit Insurance Corporation.”

The article added that, “The growing distress of Midwest farmers illustrates the myriad threats now facing U.S. agriculture: intense competition for land; competing demands for limited water; a strong dollar that raises U.S. export prices; extreme weather patterns; and rising foreign competition.”

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