Implement Dealers and Input Suppliers Taking on Increased Role in Funding Farm Operations

DTN writer¬†Katie Dehlinger reported this week that, “Implement dealers and input suppliers are taking on an increased role in funding farm operations, and a new study published on the FarmDoc Daily blog finds that in 2016, implement dealers issued $11.2 billion dollars of debt to farmers with the vast majority of it — $10.72 billion — going to fund equipment purchases.

“‘What we’ve seen is a growth in implement dealer financing for non-real estate long-term debt,’ Todd Kuethe, one of the blog’s authors and University of Illinois ag economics professor, told DTN. ‘These are things you’re financing for multiple years, so it’s not your one-year operating loans. We saw a real growth during the farm expansion and commodity price boom. It’s come down a little bit, but it’s still stayed pretty high.’

“Kuethe’s research, done in conjunction with Jennifer Ifft at Cornell University and Kevin Patrick with the National Ag Statistics Service, shows implement dealers’ share of long-term non-real estate debt grew from 11% in 2003 to 31% in 2013 and 2014. It was 27% in 2016.”

The DTN article added that, “The rising popularity of this type of financing raises two primary concerns: tracking and regulating it. If a lender is running a credit history on a potential borrower, will it show up in that buyer’s history? The concern isn’t the John Deeres and the like, it’s the potential ‘that some people, if they have enough individual wealth that they’re loaning out through other means, those potentially aren’t regulated. So how much of it is risky?’

“Kuethe says that’s a concern, but the data shows there’s no significant difference between people who borrow from implement dealers and from traditional lenders. ‘So it doesn’t appear that its riskier, and it appears that the interest rates are pretty comparable, so it doesn’t look likely they’re (conventional lenders) at a pricing disadvantage.'”

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