Farmers in the Midwest and Plains – the major regions for corn, wheat and soybean production – are borrowing money to pay short-term operating expenses because shrinking crop income makes it harder to pay cash, according to a survey of ag bankers. “Operating loan volumes surged 25 percent from a year ago, offsetting an 18 percent drop in loan volumes for all other non-real estate farm loans,” said the Kansas City Federal Reserve Bank, which compiled the nationwide Agricultural Finance Databook.
“Although loan volumes have increased steadily since 2011, recent increases have coincided with a period of declining farm income. According to the USDA, crop cash receipts have declined 22 percent since 2012, but costs associated with manufactured inputs, seeds and rent declined just 1 percent in the same period,” said the Kansas City Fed in describing the April-June period. That’s when growers face bills for fuel, seed, fertilizer and pesticides to plant crops that will not be harvested, and produce income, until fall.
“In the second quarter, operating loans accounted for 55 percent of all loans greater than $250,000, compared with an average of 39 percent from 2010 to 2014.”
While the higher ratio of operating loans compared to farm income points to a growing risk in the farm sector, the credit risk associated with farm loans has generally remained stable, said the Kansas City Fed. Interest rates are historically low and many farm loans were made at fixed rates. And despite the rise in agricultural debt levels, “delinquency rates and charge-off rates for farm loans remained low.”
In related news, farmland values fell in the northern Corn Belt, with Iowa down 6 percent in a year, Minnesota down 5.9 percent, North Dakota down 4.2 percent, and northern Illinois and northern Indiana down 1 percent.