December 1, 2015
Wichita The nation's net farm income is the lowest since 2002, and with another year of low commodity prices, demand for agriculture loans is surging as farmers struggle to make ends meet.
Today's grain prices will bring in enough to pay for basic operating costs like fertilizer, seed and land rent, said Troy Soukup, the past president of Kansas Bankers Association's Ag Bankers Division. Yet, crop prices are not high enough for farmers to make payments on equipment loans — or even to get paid for their own labor.
Agricultural lenders say they are seeing people who had operating loans requesting larger ones, and some who had operated with cash are borrowing money. But it's unlikely the current run on loans will be anything like the farm credit crisis of the 1980s, when those who survived the significant year-to-year losses were without large debts to repay.
Farmer Tom Giessel had to borrow just to finish out this season at his western Kansas farm where he grows wheat, corn and sorghum. Not so long ago, commodity prices were so high that Giessel didn't have to borrow any money for the farm between 2012 and 2014.
"Everybody is kind of taking a step backward with these low commodity prices," he said. "In fact, it might be more than a step — it might be kind of a tumble backward."
U.S. farm debt is forecast to increase 6.3 percent in 2015, a recent U.S. Agriculture Department's Economic Research Service report showed. At the same time, net income has plummeted by a staggering 55 percent since 2013 and is forecast to be $55.9 billion this year — the lowest since 2002. The report cites depressed crop and cattle prices as the main reasons for the decline.
It's the latest in a boom-and-bust cycle as old as farming. A widespread drought that began in 2010 in the south and spread across the Midwest before peaking in 2012 diminished stockpiles of grain, but was followed by a renaissance fueled by a rare combination of high crop yields and prices. As more grain crops were grown, the resulting glut caused a sharp fall in prices these past two years, aggravated by weak exports.
"Most of what we are hearing out there is that farmers and the banks are in good shape to be able to weather any potential downturn," said Steve Apodaca, vice president of the Washington, D.C.-based American Bankers Association's Center for Agricultural and Rural Banking.
The USDA's Farm Service Agency saw demand for loans across the nation soar over two from nearly $4 billion in 2013 to more than $5.6 billion in 2015. Delinquency rates nationwide were around 1 percent, according to FSA data.
Lenders credit the low delinquency rates in part to banks, government lenders and some agricultural programs that help stretch out repayment periods until prices come up again. Some lenders also are restructuring payments on some older loans for equipment or land to give farmers more flexibility, according to Soukup, who's also a banker.
But the longer commodity prices stay at this level, the more difficult it will be to do that long-term.
Giessel is now trying to decide whether he should plant much, if any, corn next year due to the cost of seed: "I guess what you will end up choosing is what you will lose the least amount of money on, if you are going to put a crop out."
Originally published at: http://www.basehorinfo.com/news/2015/dec/01/demand-farm-loans-surges-amid-low-crop-cattle-pric/