Although weaknesses persist, farmers are borrowing less money


Farmers and ranchers take fewer loans from farm banks and ask for smaller amounts of money when they need money to pay for equipment, livestock or daily expenses, the Federal Reserve said in its Quarterly Agricultural Finance Databook. “Sector weaknesses have persisted, continuing to put pressure on farm cash flows and farm credit conditions,” the Fed reports.

Farm loans slowed during the summer months of July, August and September, the same time that the Trump administration announced operational details of its Ad Hoc Market Facilitation Program (MFP) and began payments. Disbursements started at the end of August and amounted to $ 1 billion per week at the start. At the end of September, payments totaled $ 5.2 billion, with Iowa, Illinois, Minnesota, Kansas and Nebraska being the top states. Up to $ 7.25 billion was available. The Databook, released late last week, did not discuss the possible impact of the payments.

A decrease in borrowing could be interpreted as a sign of the financial soundness of the operation, but there are compensating indicators. Farm debt is rising, interest rates on non-real estate loans are gradually rising, and loan repayment rates are easing, the Federal Reserve said. Yet interest rates are below the 20-year average and loan default rates remain low by historical standards.

“The main contributor to the slowdown from the sharp increases a year ago was a decline in the average size of farm loans,” the Databook said, based on surveys of farm bankers at the nationwide. Farm loans allow producers to pay their bills while they wait to harvest crops or fatten livestock for slaughter.

According to Fed surveys, the average operating loan was $ 47,400 in the third quarter of this year, up from $ 67,310 in the spring and $ 64,200 in the third quarter of 2018. Banks issued 860,000 operating loans this summer, a total well below 980,000 loans. last summer.

“In many areas, agricultural borrowers were affected by flooding or other extreme weather events during the first half of the year,” the Databook said. “The impacts appeared to be most severe in the districts of Chicago, Minneapolis and St. Louis, where some form of extreme weather has affected more than 50% of agricultural borrowers. The effects of weather conditions in the first half of the year could continue to weigh on production prospects, yields and credit conditions throughout 2019. ”

Farmland values ​​declined slightly this spring in the Midwest and Northern Plains compared to spring 2018, the Federal Reserve said. “Conversely, agricultural lenders in Oklahoma and Texas have reported small increases in the value of farm real estate. ”

The USDA projects net farm income, a measure of wealth, at $ 88 billion this year, the highest in five years, supported by large government payments and aggressive cost cutting by producers. Economists such as David Widmar warn that now is “not the time to get comfortable” because Trump’s tariff payments are not guaranteed in the future and there may be rate hikes. interest or the price of fuel, fertilizers and pesticides.

The Databook is available here.

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