Thursday, February 25, 2016

Bankers demand farm loans be repaid and say no to new loans; farmers getting deeper in debt

Bankers who backed farmers during the long boom in agriculture are saying no to loan applications and are demanding loans be repaid during the current downturn, P.J. Huffstutter and Justin Madden report for Reuters. "Many corn and soybean farmers already are trying to adjust by selling off grain stockpiles, begging landlords to reduce rents and pleading with bankers to restructure debt and give them more time to pay it back." (Reuters graphic; click on it for larger version)

"But bankers are worried about the potential of loan defaults as incomes fall, prompting farmers to take on more debt," Huffstutter and Madden write. "U.S. farm debt, adjusted for inflation, is now at the highest levels since the nation's agricultural crisis in the 1980s, when scores of rural banks failed. Tightening credit sends a clear message: the hard times are here to stay, and sacrifices are in order to avoid a future of forced land sales, farm equipment repossession and bankruptcies."

"Customers with grain in their bins are being steered toward government-backed loans where the taxpayer would shoulder some of the risk," Huffstutter and Madden write. "The number of these marketing assistance loans from the U.S. Department of Agriculture—short-term credit backed by crops—rose to over 47,500 with $5.7 billion dispersed in 2015, up over 50 percent from when the downturn began in 2013, according to USDA data."

"The squeeze comes as most farmland rent payments—which can run into millions of dollars—are due March 1. Seasonal payment deadlines also loom for seeds, chemicals and equipment," Huffstutter and Madden write. "The crunch could also deepen the pain felt by input suppliers, grain buyers and equipment manufacturers. On Friday, Deere & Co. further cut its sales and profit outlook and said it now expected farming and construction equipment sales to fall 10 percent for the year ending in October."

USDA says that "farm sector debt soared past $364 billion last year and is forecast at over $372 billion in 2016—levels not seen since 1984," Huffstutter and Madden write. "USDA also predicts net farm incomes will fall for a third year in a row to $54.8 billion, down 56 percent from 2013's peak. Demand for loans has been rising for 11 consecutive quarters but repayment rates are falling. A survey by the Federal Reserve Bank of Chicago showed repayment rates at the end of 2015 at their lowest since early 1999." (Read more)

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