WASHINGTON, Sept. 21, 2016 - The ailing financial situation for many of America’s farmers will be getting special attention at the next USDA Agricultural Outlook Forum, an annual gathering that attracts representatives of the agriculture sector from around the world every February for two days in Arlington, Virginia.
The next Forum is still in the early planning stages, but USDA Chief Economist Robert Johansson said he’s hoping to get bankers, equipment dealers, farm coop leaders, government regulators and others to speak about farm financing. The topic “will most likely be even more important going into the spring next year for planting decisions,” he said.
Worsening farm income, the rising demand for credit, and the increasing inability of many farmers to make payments on existing loans has made the situation worthy of highlighting at the USDA Forum, Johansson told Agri-Pulse.
Johansson said he is paying especially close attention to the nonaccrual rate for loans, which has increased over the first two quarters of 2016. Nonaccrual loans, which don’t generate interest because borrowers fail to make payments, were on the decline through 2015, but that trend reversed this year.
National Farmers Union President Roger Johnson said that highlighting farm credit at the Forum is a great idea. Farmers have seen their income cut severely over the past three years, he said, and a “spotlight” on the situation is critical.
USDA’s Economic Research Service announced last month that it expects farm income to drop for the third straight year. It’s predicting a decline to $71.5 billion for 2016, from $80.7 billion in 2015 and $92.6 billion in 2014.
Strong production, weaker demand and low prices are the key factors behind the decline, and Johnson said he doesn’t see the situation changing soon.
“If you look at carryover stocks of all the major grains … they are extremely burdensome … so the likelihood for long-term price improvement is not very good, and all of that suggests that you’re going to find folks continuing to tighten their belts,” he said.
Financial stress for farmers was bad last year, worse this year and looks to remain significant next year, Johansson said. One in every 10 farmers is highly or very highly leveraged, and that’s having an impact on the farm economy, he said.
The rising need for farm credit was underscored about three weeks ago when USDA’s Farm Service Agency, commonly referred to as the lender of last resort, announced that it was offering an additional $185 million worth of direct and guaranteed loans because demand for the credit had outstripped supply.
FSA Administrator Val Dolcini said the agency will have provided a record $6.2 billion worth of loans and loan guarantees to more than 38,000 farmers in fiscal year 2016, which concludes at the end of September.
Groups like the National Sustainable Agriculture Coalition, National Farmers Union and the Farm Credit Council are already telling lawmakers that Congress needs to increase the budget for loans and loan guarantees provided by FSA.
In an interview this week, Dolcini said that if his agency were to be given more funds, there would not be a problem finding borrowers. “Certainly if we had more money, we would make more loans,” he said. “There’s no question about that.”
Farm credit demand has been growing since 2011 and saw spikes in the boom years of 2013 and 2014 when prices were high, income was strong and farmers felt confident enough to increase investment in new equipment and land, Johansson said. But now many farmers have taken on too much debt and are having trouble making payments.
The average debt-to-asset ratio has risen this year, as has the number of nonaccrual loans, and that’s making it harder and harder for bankers to lend out money, especially as farmland values and cash rents are coming down.
Nathan Kauffman, assistant vice president and Omaha branch executive with the Federal Reserve Bank of Kansas City, addressed the loan repayment trend in an Aug. 11 report.
In the second quarter of 2016, “more than 7 percent of farm loans had major or severe repayment problems, a relatively large increase” from the less-than-3-percent average from the same period in 2011-13, the report said. “The share of farm loans with at least minor repayment problems was approximately 22 percent in the second quarter, and has trended up since 2014.”
Johansson said he would like to have Kauffman take part in the Forum in February. The Fed official told Agri-Pulse he will definitely be there, but is unsure of what his role will be.
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