Signs of stabilization for the farm economy have been put on hold, according to the latest Ag Credit Survey by the Federal Reserve Bank of Kansas City.
“A sharp drop in the price of corn and soybeans contributed to a bleaker view of the District’s farm economy in the second quarter,” write Nathan Kauffman , vice president and Omaha Branch executive and Ty Kreitman , assistant economist. “For many agricultural borrowers, cash flow already had been a significant concern, but likely was exacerbated by the recent drop in prices amid ongoing uncertainty surrounding the future for agricultural trade.”
Ag lenders in the Kansas City District, which includes Nebraska, Kansas, Oklahoma, Colorado, Wyoming, northern New Mexico and western Missouri, report a modest increase in farmers not repaying their loans.
Rates of loan repayment deteriorated slightly after showing signs of improvement in late 2017. On average, bankers across the District reported that nearly 30% of the dollar volume of their farm loan portfolios was experiencing at least minor repayment problems. In Nebraska and the Mountain States, this issue was even more pronounced, with 35% of bankers reporting their farm loan portfolio is experiencing repayment problems.
These repayment issues are causing more lenders to deny farm operating loans. Although most banks reported that relatively few loan applications were denied, the number of denials in the second quarter increased. The percent of bankers reporting the denial of at least 4% of farm operating loan applications in recent years has increased steadily.
Farm loan renewals and extensions continue to slowly decrease, but demand for farm loans remains high. Bankers expect demand in the next three months to be even larger, reflecting anticipated increases to operating loan balances through the end of the growing season.
At the same time, ag lenders report a decline in funds available for farmers. While the agricultural lending cycle typically results in fluctuations in bank liquidity as operating loans grow to meet seasonal demands, the majority of bankers continued to report year-over-year decreases in available funds for the fourth straight year.
The majority of bankers reported they had increased collateral requirements compared to a year ago.
“Despite these challenges in the District’s farm economy and additional increases in interest rates, farmland values have remained relatively steady and provided ongoing support to agricultural credit markets,” the economists write.
See from-the-field reports from 12 ag lenders in the region: