Tag Archives: Farm

Wall Street Banks Are Starting To Give Up On Lending To Farmers

After years of farm income falling and the U.S./China trade war now taking its toll on the sector, Wall Street banks look as though they are giving up on lending to farmers, according to Reuters

Meanwhile, total U.S. farm debt is slated to rise to $427 billion this year, up from an inflation adjusted $317 billion just 10 years ago. The debt is reaching levels not seen since the 1980’s farm crisis. 

Agricultural loan portfolios of the nation’s top 30 banks was lower by $3.9 billion, to $18.3 billion between their peak in December 2015 and March 2019. This is a 17.5% fall.

An analysis performed by Reuters identified the banks by their quarterly filings of loan performance with the FDIC and grouped banks that were owned by the same holding company.

The slide in farm lending is happening as cash flow worries surface for farmers. We’ve highlighted numerous instances of farmers under pressure due to the U.S./China trade war and poor conditions, like this report from early June and this report on farmer bankruptcies from May.

Sales of products like soybeans have fallen significantly since China and Mexico imposed tariffs in retaliation to U.S. duties on their goods. The trade war losses exacerbated an already strained sector, under pressure from “years over global oversupply and low commodity prices.”

Chapter 12 bankruptcy filings for small farmers were up from 361 filings in 2014 to 498 in 2018. 

Minneapolis-St. Paul area bankruptcy attorney Barbara May said: 

“My phone is ringing constantly. It’s all farmers. Their banks are calling in the loans and cutting them off.”

At the same time, surveys are showing that demand for farm credit is growing. The demand is most pronounced among Midwest grain and soybean producers. Having fewer options to borrow could threaten the survival of many farms, especially when incomes have been cut in half since 2013. 

Gordon Giese, a 66-year-old dairy and corn farmer in Mayville, Wisconsin, was forced to sell most of his cows, his farmhouse and about one-third of his land last year to pay off his debt obligations. 

He said: 

“If you have any signs of trouble, the banks don’t want to work with you. I don’t want to get out of farming, but we might be forced to.”

Michelle Bowman, a governor at the U.S. Federal Reserve called the decline in farm incomes a “troubling echos of the 1980’s farm crisis”. 

Between the end of 2015 and March 31 of this year, JP Morgan pared back its farm loan holdings by 22%, or $245 million. Capital One’s farm-loan holdings at FDIC-insured units fell 33% between the end of 2015 and March 2019. U.S. Bancorp’s fell by 25%. Agricultural loans at BB&T Corp have fallen 29% since summer of 2016. PNC Financial Services Group Inc has cut its farm loans by 12% since 2015.

The four-quarter growth rate for farm loans at all FDIC-insured banks slowed from 6.4% in December 2015 to 3.9% in March 2019. But many smaller, regional banks depend on farms as the main key to their loan books. 

In March, FDIC insured banks reported 1.53% of farm loans were 90 days past due, up from 0.74% at the end of 2015. 

Curt Everson, president of the South Dakota Bankers Association said: “All you have are farmers and companies that work with, sell to or buy from farmers.” 

Source: ZeroHedge

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American Farm Debt Reaches 1980s Crisis Levels

Debt among American farmers has increased to $409 billion, Agriculture Secretary Sonny Perdue warned Wednesday. That is up from $385 billion last year and is currently at levels not seen since the agricultural recession (farm crisis) of the 1980s, reported Reuters.

“Farm debt has been rising more rapidly over the last five years, increasing by 30% since 2013 – up from $315 billion to $409 billion, according to USDA data, and up from $385 billion in just the last year – to levels seen in the 1980s,” Perdue said in his testimony to the House Agriculture Committee.

Purdue told lawmakers: “Relatively firm land values have kept farmer debt-to-asset levels low by historical standards at 13.5%, and continued low-interest rates have kept the cost of borrowing relatively affordable.”

“But those average values mask areas of greater vulnerability,” he added.

The agricultural sector has experienced tremendous headwinds in the last five years amid deflationary trends in commodity prices, storms damaging crops, and more recent – supply chain disruptions into China due to President Donald Trump’s trade war.

“As producers are not able to cover year to year expenses with operating loans, they are forced into transforming operating loans into term debt which erodes their creditworthiness,” said Luis Ribera, an agricultural economist at Texas A&M University.

“On top of all that then we have the trade war which reduces the demand of US commodities given that tariffs make them more expensive and then depress the prices even more.”

US Department of Agriculture chief economist Robert Johansson said farm exports are expected to drop by as much as $1.9 billion this year, citing the deepening trade war.

China has been a significant buyer of corn, soybeans and other agricultural commodities for at least three decades, but since President Trump launched protectionist policies, Beijing responded by imposing tariffs on American agriculture products which caused trade between both countries to decline. While Beijing has promised to buy hundreds of billions of dollars in agricultural items, it has offered little relief to soybean farmers who are teetering on bankruptcy even with President Trump’s farm bailout money in hand. But as recent trade negotiations might result in an upcoming lasting agreement, it might not be enough to save hundreds of heavily indebted American farms from sliding into bankruptcy. 

https://www.zerohedge.com/s3/files/inline-images/farm%20map.png?itok=ZKqc3yif

The number of farmers filing for bankruptcy has soared to its highest level in a decade. And with high levels of debt, bankruptcies are expected to rise into the 2020s.

Perdue said land values have helped some farmers maintain a low debt-to-asset ratio of 13.5%. However, in the next recession, land values are expected to dip, which could trigger a deleveraging period for farmers on par with the 1980s farm crisis.

Source: ZeroHedge