Farm borrower stress increased over past four years
Farm borrower stress has increased over the past four years, Farm Credit officials said in a briefing Wednesday.
Todd Van Hoose, president and CEO of the Farm Credit Council, released a series of charts showing that nonperforming loans as a percentage of total loans has risen, the debt-to-asset ratio has climbed and the level of farmers’ working capital that protects them from market and weather troubles has declined.
Farm Credit rates loans on a scale of 1 to 14, Van Hoose said, and the percentage of loans in Category 1, which are the best, has declined, while the percentage of loans in Category 10 and above has risen, he noted. The percentage of loans that are in Category 13 and 14, which are described as “doubtful and loss” rose from 4% in 2014 to 8% in 2019.
The deterioration is “not very big, but a steady uptick,” he said.
Farmers’ net cash income “looks ok,” Van Hoose said, but the percentage from government payments has risen from 11.5% in 2017 to 37.2% in 2020, raising the question of whether farm income levels are “sustainable.”
Mike Reynolds, president and CEO of Farm Credit East, which operates in seven Northeastern states, said that without assistance from the government the 8% of loans that are considered of doubtful quality would have doubled to 16%.
About 80% of dairy operations are in “acceptable” shape, Reynolds said, but there is “not much room for adversity.”
Mike Jensen, president and CEO of Farm Credit Services of America and Frontier Farm Credit, which operate in the Midwest, said that farmers in his region were already making adjustments to lower commodity prices and weather conditions when the coronavirus pandemic led to a further deterioration in commodity prices.
The lack of access to meat packing was so bad at one point, Jensen said, that he believed “we were weeks if not months away from a disaster” in terms of no market for animals, environmental problems due to the need for depopulation and “a food security issue that this country had never seen.”
Lower interest rates, he said, led to his customers converting 22,000 loans and saving $18 billion.
China’s purchases at higher levels and ethanol plants increasing operations have improved the situation, “but it would be great to have the restaurants back in full production. Grains and livestock have settled into a break-even level,” Jensen said.
Iowa farmland, at about $10,000 per acre, has declined about 20% from the peak, but that was less than an expected 30% decline, he added. The stability in land values, he added, has allowed some producers to get out of farming, but continue to rent out their land.
There is a general shortage of labor in agriculture, but meat plants are experiencing a severe shortage that has led to more expenditures on automation, Jensen said. While there is talk of building more meat plants, smaller meat plants would have faced the same labor and regulatory issues as larger plants, he added.
Customers are not expecting another round of special government payments, but the question is whether there will be another wave of the coronavirus, the officials said. ❖