Farm Lenders Brace for Shakeout

DTN Executive Editor Marcia Taylor reported earlier this week that, “If you want a sneak peek at the conversations that will be taking place in lenders’ offices this winter, study actual farm business records from year-end 2015, ag economists are warning. All signs indicate a number of Grain Belt operators have depleted their liquid reserves and will be facing major sacrifices if they want to keep farming in 2017.”

Ms. Taylor explained that, “The 2015-crop was the lowest income year in the 20 years of records monitored by the Center for Farm Financial Management with median incomes of about $22,000, said University of Minnesota economist and the center’s assistant director Dale Nordquist. That was despite yield records set for corn and soybeans, so he doubts incomes will improve much after 2016’s returns are tallied.”

The DTN article also noted that, “Agriculture is in a situation much like the seventh-inning of a baseball game, Virginia Tech economist emeritus Dave Kohl added. ‘They called in the relief pitcher in innings three through six, and that was working capital. Now the next relief pitcher is core equity, its land. Growth-oriented farmers without a land base [to remortgage or sell] will be headed to the exit ramp.'”

And Mike Wilson reported yesterday at Farm Futures Online that, “After a brief bump in crop prices last summer, farm financial conditions continue to deteriorate with little positive news for 2017. As a result, ag bankers meeting in Indianapolis this week are bracing for even tougher talks with farmer customers who see working capital depleted after three years of thin or non-existent margins.

“‘During the super cycle businesses grew faster than their managers’ business acumen, but margins were so high it didn’t matter,’ says Virginia Tech economist Dave Kohl, a keynote speaker at the 2016 Ag Bankers Conference. ‘Prices went up, but so did fixed and variable costs. Bankers will be looking now at a farmer’s accrual adjusted financials to see if those costs are coming down. If they’re not, there may be a problem.'”

In his article, Mr. Wilson added that, “While some bankers report higher loan defaults, banks themselves are in good financial shape, according to FarmerMac economist Jackson Takach. While crop prices are bogged down from record inventories, demand is moving at a brisk clip for nearly all commodities.

“‘Agriculture is set up for a period of prosperity in a couple years, after we work through this current time,’ says Jason Henderson, director of Extension at Purdue University. ‘The rest of the world is waiting for the U.S. economy to be that spark. Right now we have the best looking house on a really bad block when you look at the global economy. We are the world’s consumers and they are relying on us to lift them out of recession.'”

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