Farmers typically try to stretch their dollars during the summer in the expectation that payday will arrive with the fall harvest. Not this year. Ag bankers report the largest summertime increase in non-real-estate loan volume in 16 years, driven primarily by demand for operating loans to pay day-to-day expenses, said a quarterly Federal Reserve report.
The surge in loans came at the same time lenders anticipated weak farm income, following an anemic spring, said the Fed’s Agricultural Finance Databook released over the weekend. The USDA forecasts net farm income this year will be the lowest since 2009, not counting Trump bailout payments intended to offset the impact of retaliatory tariffs by China. Those payments are beginning to flow and totaled nearly $300 million as of last week.
“Alongside persistently low agricultural commodity prices, bankers throughout the country expected farm income to decline in coming months,” wrote Nathan Kaufman and Ty Kreitman of the Kansas City Fed, which compiles the Databook. Despite rising interest rates, farmland values were higher in the Midwest and Plains at mid-year than at the same point in 2017. North Dakota had the largest increase, 6 percent, while Kansas had the biggest decline, 4 percent, among three states seeing lower values.
“The total volume of non-real-estate farm loans was more than 30 percent higher than a year ago,” said the Databook. “This sharp growth in farm lending followed steady increases earlier in 2018 and represents the largest annual percentage increase in the third quarter since 2002. The increase … was driven primarily by operation loans.”
In the third quarter —July, August and September — big-ticket loans of more than $1 million apiece accounted for nearly 40 percent of non-real-estate loans, compared to the usual 25 percent. Big agricultural banks hold nearly 80 percent of non-real-estate farm loans, an increase of 8 percentage points in a year. Non-real-estate loans include lending for livestock, operating expenses, and farm machinery and equipment.
Farm income set a record in 2013, propelled by the commodity boom that began in 2006. Income slumped with the collapse of the boom but still is stronger than before the boom. The USDA says indicators of financial stress, such as the debt-to-asset ratio, are relatively benign although rising marginally. At the end of August, the USDA said cash receipts from crop and livestock would hold steady with 2017; higher expenses would pull down income. Net farm income this year would be roughly half of the record $123.8 billion of 2018.
Commodity prices fell sharply when the trade war began in July. A gauge of farmer confidence, the Ag Economy Barometer operated by Purdue, is at its lowest reading in two years, before President Trump was elected. Some 54 percent of respondents polled by Purdue said their farm operation was worse off than a year ago.
“Exacerbating concerns about the impact of China’s tariffs on agricultural products has been unusually favorable weather conditions this summer leading to record yields, and large domestic supplies for corn and soybeans,” said Purdue.