Agricultural lending declined during the second half of 2019, and while that reflected lower production costs, it “likely also was due to an increase in revenue from government payments (Market Facilitation Program) connected to trade disputes that lingered through the year,” said the Federal Reserve on Thursday.
Low commodity prices and high costs are tightening the credit squeeze on the farm sector, with little expectation of improvement in the near term, according to ag bankers in the Midwest and Plains. Some farmers and ranchers will liquidate assets during the winter to stay afloat, and some highly leveraged operators will be forced out of business, they said.
Farmland values are falling for the fifth year in the Midwest, and one factor in the decline is “muted expectations for farm income” this year, said the Chicago Federal Reserve Bank on Thursday. “The profitability of many corn and soybean farms will almost surely fall from their 2018 levels — possibly by a lot for some.”
Agricultural lenders expect farm income, which weakened in the spring, to continue to decline this summer, although a recent rally in corn, soybean, and wheat prices will act as a stabilizer, said Federal Reserve banks in Kansas City, Minneapolis, and St. Louis on Thursday.
Agricultural bankers are lending a markedly larger amount of money to farmers and ranchers, with loan volume up 11 percent from April, May, and June of last year, said the Federal Reserve on Thursday. It was the highest rate of growth in loan volume in the spring quarter since 2011.
Farm income weakened in much of the Midwest and Plains during the opening months of this year, said reports from regional Federal Reserve banks on Thursday, with ag bankers telling the St. Louis Fed that an adverse trade outcome is clearly the most significant threat to agriculture in 2019. On Friday, the Trump administration increased the tariffs on $200 billion worth of Chinese goods.
The slump in commodity prices that has accompanied the ongoing tit-for-tat trade war has sapped the farm economy this summer and poses financial risks going into the fall, said Federal Reserve banks in Chicago and Kansas City on Thursday.
Although corn and soybean prices are lower than a year ago, farmland values in the Midwest are up by 1 percent compared to this point a year ago, the first year-over-year gain in three years, said the Chicago Federal Reserve Bank. But land values fell in the central Plains, according to ag bankers surveyed by the Kansas City Fed.
Farm income plummeted with the collapse of the commodity boom in 2013 yet cropland, usually a farmer's biggest asset and the foundation of a farm's financial health, is as valuable as ever, the USDA says. Producers are making enough money to pay their mortgages, aided in part by low interest rates on the loans, while the perennial hunger among farmers, ranchers and investors to buy land is bolstering prices on the national level, although the Midwest and northern Plains feel the pain of lower commodity prices.