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 are still concerned about underlying weaknesses in the sector.
For three decades, the cycle was predictable for agricultural bankers: Farmers would use money from the sale of crops harvested in the fall to pay down their debts during the winter. But this year broke the pattern. Farm debt increased during the first quarter, said the Federal Reserve in a report that pointed to trade disputes and burdensome crop stockpiles as the likely causes.
Agricultural bankers are slowly raising the interest rate on loans to farmers and ranchers, with the largest increases on the short-term operating loans that account for 60 percent of new, non-real estate farm loans at the banks, said the Ag Finance Databook published by the Kansas City Federal Reserve Bank. "Although farm debt also has continued to rise alongside higher rates, the increase in interest expense has remained relatively small."
Farm lending has stabilized in the face of low agricultural profit margins, says a quarterly Federal Reserve report on ag banks. Operating loans, to pay day-to-day expenses, have accounted for nearly 60 percent of non-real-estate loans for the past year, "the highest in the 40 year survey history," says the report of conditions nationwide.
For the first time since the summer of 2015, farmland values in the Midwest are holding steady, says the Chicago Federal Reserve Bank. In a quarterly survey, agricultural bankers told the regional Fed that they expect land values to remain stable through spring.
Agricultural credit conditions throughout the Tenth Federal Reserve District of western Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and northern New Mexico continued to deteriorate in the second quarter of 2016, the Federal Reserve Bank of Kansas City reported, and bankers "expect farm income to remain weak in the third quarter."
Farm bankers across the Midwest and Plains say that the persistent slump in crop and livestock prices pulled down farmland prices, with further declines expected through spring.
With farm income down in 2015, persistently high need by farmers and ranchers for short-term loans "amplified concerns about farm sector liquidity moving into 2016, especially if farmers' profit margins remain low," said the Ag Finance Databook published by the Kansas City Federal Reserve Bank. The book, produced quarterly and looking at agriculture nationwide, said, "Loans used to finance current operating expenses remained at record levels, while most other types of non-real estate loans declined slightly."
U.S. inventories of corn, soybeans and wheat more than doubled on average since 2013 while consumption has stagnated, says the Kansas City Federal Reserve Bank. "The outlook for the agricultural economy has continued to become more pessimistic."
Farmers in the Midwest and Plains - the major regions for corn, wheat and soybean production - are borrowing money to pay short-term operating expenses because shrinking crop income makes it harder to pay cash, according to a survey of ag bankers.