Farm Debt Highest in 30 Years

The level of debt to income among farmers is the highest it’s been in three decades, and growers are increasingly unable to make loan payments.

The Federal Reserve says growers are borrowing more to pay bills, repayment rates are plunging, and the number of bankers requesting additional collateral is the highest in 25 years.

While low interest rates and savings from big paydays not long ago have kept farmers in better financial shape than the bankruptcy crisis of the mid-1980s, signs of stress are increasing, especially for growers who invested during the boom years. Farm income is down 42 percent from a record in 2013, government data show, and MetLife Agricultural Finance predicts farmland values will tumble 20 percent by 2018.

“Unquestionably, some farmers are not going to make it,” said Dan Kowalski, director of research at CoBank, an agricultural lending cooperative based in Greenwood Village, Colorado. “If they made aggressive growth decisions and did it with debt, that won’t work out well. Credit quality is starting to slip on the farm and smaller agricultural businesses. Bankers are asking if they have the cash flow to pay bills.”

The Federal Reserve Bank of Kansas City said in November that rural lenders it surveyed are seeing an erosion of financial health and credit conditions for crop and livestock producers in a seven-state region from Missouri to Colorado. In the third quarter, nearly 30 percent of the banks reported a significant deterioration of working capital for farmers, about twice as many as the same time in 2015, the Kansas City Fed said in November. An index tracking loan-repayment rates in the region was the lowest since 1985.

About 60 percent of total farm loans have been used this year to finance operating expenses such as seed, fertilizer, animal feed and land rent, the Kansas City Fed said. That’s the most in more than two decades.

Source: Bloomberg