Main Street businesses in the Plains are feeling the pinch of lower commodity prices while producers throughout the Farm Belt are watching their pennies, said quarterly reports from three regional Federal Reserve banks. “Weaker cash flow could continue to intensify financial stress for some producers as the fall harvest approaches,” said the Kansas City Fed. In a survey by the Chicago Fed, farm bankers said the amount of operating loans generated in the first half of this year was well above normal.
“Given lower prices for key crop and livestock products, many farm operators have returned to lenders in order to shore up reserves of working capital while attempting to ride out the downward cycle in agriculture,” said the Chicago Fed. In early summer, corn prices were 48 percent lower than two years ago and soybeans were down by 35 percent. Milk prices have fallen by 27 percent and slaughter hog prices by 28 percent from one year ago.
“The agricultural sector appears to be coping well with a period of weakening farm income growth,” said the St Louis Fed, a common theme in the three reports. Producers are making fewer purchases of land and equipment.
“However,” said the St Louis bank, “the average (Eighth Federal Reserve) District agricultural bank has a small share of borrowers that need to resolve repayment problems and/or have lost access to their lines of credit due to deteriorating financial conditions.” Bankers said 4.5 percent of farm loans have “major problems requiring more collateral and/or long-term workouts” and 0.5 percent had severe problems that will likely result in loan losses or a forced sale of assets.
The Kansas City Fed said 59 percent of ag bankers “reported that a weakening agricultural economy had weakened Main Street business activity in their lending areas. The largest evidence of weakening occurred in Nebraska, where 84 percent of survey respondents reported that a weakening agricultural economy was adversely affecting Main Street, up from 38 percent in 2014.”