In the Ag Economy, Signs of Stress are Increasing

Bloomberg writers Jeff Wilson and Megan Durisin reported earlier this week that, “Betting the farm on record crop, livestock and dairy prices has turned into a losing investment for an expanding share of America’s agricultural heartland. The level of debt to income is the highest in three decades, and growers are increasingly unable to make loan payments.

“Four years after record U.S. crop and farmland values boosted purchases of land and equipment, a global surplus has sent prices tumbling and farm income into the longest slump since 1977. The Federal Reserve says growers are borrowing more to pay bills, repayment rates are plunging, and the number of bankers requesting additional collateral is the highest in 25 years.”

The article noted that, “While low interest rates and savings from big paydays not long ago have kept farmers in better financial shape than the bankruptcy crisis of the mid-1980s, signs of stress are increasing, especially for growers who invested during the boom years. Farm income is down 42 percent from a record in 2013, government data show, and MetLife Agricultural Finance predicts farmland values will tumble 20 percent by 2018.”

The Bloomberg article indicated that, “Bankers are getting more bearish about the farm economy. The Rural Mainstreet Index created by Creighton University, based on monthly surveys of lenders across 10 Midwestern states, sank in October to the lowest since April 2009. The banks expect about 22 percent of farmers to suffer negative cash flows in 2016, and some lenders said farm foreclosures will be an increasing challenge.”

Graph From Bloomberg News

Wilson and Durisin added that, “‘Most of the problems are with producers who kept trying to grow at the end of the boom cycle by buying more land, equipment and bidding up cash rents,’ said Joe Kessie, senior vice president at Lake City Bank in Warsaw, Indiana, and chairman of the agriculture committee at the American Bankers Association. ‘The biggest problems are with younger farmers and producers who don’t have a big land base to refinance operating and equipment loans. I have had to pass on some deals that just won’t work.'”

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