Although ag bankers in the Midwest and Plains say the administration’s multibillion-dollar trade war payments were a boon to farmers and ranchers, some lenders point to underlying weaknesses in the sector. In quarterly reports released by the Chicago and Kansas City Federal Reserve banks on Thursday, the lenders said farmland values rose in the closing months of 2019.
“Credit conditions in the district remained weak but deteriorated at the slowest pace in more than four years,” said the Kansas City Fed’s Ag Credit Survey. “Bankers commented that trade relief payments provided notable support to farm finances in 2019, but many also indicated that underlying weaknesses in the sector continued to be driven by low agricultural commodity prices.”
The Chicago Federal Reserve said in its AgLetter that a substantial portion of the trade war payments, distributed through the stopgap Market Facilitation Program, went to Midwestern producers. “Given higher levels of government support and higher prices for some products, the USDA forecast an almost $10 billion increase in net farm income for 2019 nationwide. One Illinois (bank) respondent reported, ‘Farmers in our area seem optimistic. Higher grain prices and government checks have kept our economy steady.’ ”
As of Monday, the USDA had distributed $14.2 billion in MFP payments on 2019 production. The top five states were Iowa, with $1.56 billion, Illinois ($1.45 billion), Texas ($1.07 billion), Minnesota ($1.06 billion), and Kansas ($1.01 billion).
Bankers in the Plains reported a 4 percent increase in the value of non-irrigated farmland during the fourth quarter of 2019, aided by lower interest rates and strong demand for land.
“However, some risks remained … as the volume of farmland sales in the district increased for the first time in several years,” said the Kansas City Fed. “Additional increases in sales could put some downward pressure on values moving forward.”
Four out of every five bankers responding to the Chicago Fed Survey said farmland values would be steady in the first quarter of this year after rising 1 percent during the closing quarter of 2019.
“The survey results reflected some cautious optimism about agriculture’s prospects in 2020,” said the Chicago Fed. Bankers said that only 2.2 percent of farm customers with operating credit in 2019 were unlikely to qualify for new operating credit this year — a lower rate than a year ago. “Due to a recent increase in milk prices, I expect to see an uptick in capital investment that was put on hold over the last five years,” said a Wisconsin banker.
In the Kansas City district, the Fed said, “For the first time since 2014, more bankers expected farmland values to remain steady or increase compared to those that expected farmland values to decline.”
The Kansas City Fed’s Ag Credit Survey is available here.
The Chicago Fed’s AgLetter is available here.