As cash-strapped American farmers are increasingly forced to declare bankruptcy or retire early, farm loans are shifting to smaller banks as large Wall Street lenders pull out of the less profitable sector. "Fewer loan options can threaten a farm’s survival, particularly in an era when farm incomes have been cut nearly in half since 2013," P.J. Huffstutter and Jason Lange report for Reuters. "Total U.S. farm debt was $317 billion a decade ago (adjusted for inflation), but is expected to rise to $426 billion this year--almost as high as levels seen in the 1980s farm crisis."
After the subprime mortgage bubble burst in the late 2000s, many big banks dramatically expanded their farm loan portfolios. It was a profitable move at the time, since U.S. farmers were doing well and benefited from high grain and farmland prices. JPMorgan Chase & Co., for example, increased its farm loans to $1.1 billion between 2008 and 2015, a 76 percent jump, Reuters reports.
"But now - after years of falling farm income and an intensifying U.S.-China trade war - JPMorgan and other Wall Street banks are heading for the exits, according to a Reuters analysis of the farm-loan holdings they reported to the Federal Deposit Insurance Corporation," Reuters reports. "The agricultural loan portfolios of the nation’s top 30 banks fell by $3.9 billion, to $18.3 billion, between their peak in December 2015 and March 2019, the analysis showed. That’s a 17.5 percent decline."
Farmers rely on loans to buy and refinance land, as well as pay for operational expenses. Since demand for farm credit continues to grow, farmers increasingly turn to smaller regional and local banks. But lenders are becoming more cautious about lending to farmers, especially since smaller rural banks are more dependent on their farm lending portfolios and can't as easily afford to take on defaulted loans.
Gordon Giese, a 66-year-old corn and dairy farmer in Wisconsin, had to sell most of his cows, his house and a third of his land to pay his farm's debt last year after he couldn't get a loan. "If you have any signs of trouble, the banks don’t want to work with you," Giese told Reuters. "I don’t want to get out of farming, but we might be forced to."