Government payments have improved the outlook for farm finances, but like the general economy, that outlook remains highly uncertain amid the pandemic, said a Federal Reserve report on Thursday. The quarterly Agricultural Finance Databook said that billions of dollars in payments had reduced the need for farmers to borrow money this summer despite the “ongoing weakness in the agricultural economy.”
Lending by ag banks during July, August, and September for non-real estate purposes, such as money to buy equipment or livestock or to pay operating expenses, was below the 20-year average, measured in dollar volume, said the report, which was compiled by the Kansas City Federal Reserve Bank. “The total quantity of loans issued to farmers decreased, driven by a 12 percent decline in the number of operating loans.”
“Similar to the previous quarter, government payments and lending programs may have offset both declines in farm revenues and financing needs of some farm borrowers in the third quarter,” said the Databook. “However, the outlook for agricultural finance, like the general economy, is highly uncertain amid the ongoing pandemic.”
Farmers received $5.8 billion in Paycheck Protection Program loans this year, estimates the FAPRI think tank. They have also, as of this week, received a total of $16.4 billion from the two iterations of the Coronavirus Food Assistance Program. Also this year, producers collected $3.7 billion in trade war payments, $4.2 billion for land stewardship, and $5.7 billion from traditional crop subsidies.
Two decades ago, more than half of farm loans came from banks with small agricultural portfolios of less than $25 million. “In the third quarter, banks with large farm lending footprints accounted for more than 70 percent of all farm lending,” said the Federal Reserve. “Although loan volumes at the largest banks have trended upward over the past two decades, the pace of growth among those institutions has fallen below (the long-term) trend for the past four quarters, which could be the result of greater risks in the outlook for farm finances or greater support for farm borrowers from government payments and programs.”