NEW YORK CITY — Farmers have lost out on income as animal packers and ethanol producers plants have slowed or closed in the wake of the COVID-19 pandemic, according to data from S&P Global Market Intelligence.
In a report released June 29, the data company and division of S&P Global, said the pandemic has contributed to the fact that 2.68% of “total agriculture loans” for banks were delinquent as of March 31. This is the highest level since the first quarter of 2012, according to the report.
As of the third quarter, banks held $179.52 billion in farm loans, according to the report, which does not list the Farm Credit System, a major player in ag lending. It does list John Deere Capital Corp. of Reno, Nev., as the largest U.S. bank by agriculture loans in the quarter, with $15.6 billion, up 6.1% in year-on-year growth.
Ag loan delinquencies for the banks were higher on both farm real estate loans, and farm production loans for things like equipment and seed, according to the authors Carolyn Duren and Nathaniel Melican.
Farms filing bankruptcies the year prior to March 30, by state were led by Wisconsin, at 78. During that full year, zero bankruptcies were filed in North Dakota, 37 in Iowa, 35 in Minnesota, 17 in South Dakota, 12 in Montana, and 41 in Nebraska. It isn’t clear whether these were Chapter 12 farm bankruptcies or whether the numbers also included Chapter 11 bankruptcies for larger farming companies.
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As part of the report, Bruce Lee, president and chief executive officer of Heartland Financial USA Inc. of Dubuque, Iowa, said animal producers are being hit the hardest. Heartland had $549.2 million in agriculture loans in its portfolio on March 31, representing 6.5% of its loan book.
“Farmers couldn’t get their animals to market and couldn’t afford to feed them either, so that created a problem,” he said. He said the bank is increasing communications with borrowers. The bank is experiencing little in losses “partly because borrowers have high collateral values on their land.”
‘Lagging’ indicator
David Kohl, a professor emeritus of agriculture finance at Virginia Tech, was quoted in the report, saying bankruptcies are a “lagging indicator,” and that bankruptcies caused by the coronavirus pandemic won’t show up for at least another year.
The pandemic effect is “calling into question” concentration of U.S. agriculture production, Kohl said.
“Concentration and bigness brings efficiency and optimization, but it also hurts on diversification resiliency,” he said.
Banks are using government programs, assessing portfolios and providing interest-only and principal deferment to help bridge through the cycle, Kohl said.
Agriculture, food and related industries in 2017 contributed $1.053 trillion to the U.S. gross domestic product, or 5.4% of the total, according to the U.S. Department of Agriculture. The USDA’s Agricultural Research Service says “output from farms” contributed $132.8 billion to that figure, or 1% of GDP.
Andrew Liesch, a managing director and senior research analyst at Piper Sandler Cos., quoted in the report, said he wouldn’t be surprised to see an increase in “problem loans” later this year. Piper Sandler Cos. is a multinational, independent investment bank and financial services company, based in Minneapolis. Financial regulators told banks in March that farm loans “modified” for borrowers affected by the pandemic would not require a “troubled debt restructuring” category — even if deferred for up to 180 days. By that point, many farmers will have harvested crops and be able to pay off loans, Liesch said.
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Significant players
Here are some of “top-tier consolidated banks” from the Upper Midwest listed in the report:
Great Western Bancorp, Inc., Sioux Falls, S.D., had $1.87 billion in ag loans, including $967 million in production loans and $913 million in farm loans. GWB’s ag loans declined 11.3% from the previous year, accounting for 19.4% of its total loans.
U.S. Bancorp of Minneapolis had $1.49 billion in ag loans, including $566 million in production loans and $920 million in farm real estate loans. USB’s ag loans declined 10.7% from the previous year, and account for 0.5% of its total loans.
Bremer Financial Corp. of St. Paul, Minn., had $1.24 billion in ag loans, with $566.4 million in production loans, and $672.3 million in farm real estate. Bremer’s ag loans grew 2.5% in prior year and totaled 13.6% of all of its loans.
Ida Grove Bancshares of Ida Grove, Iowa, had $987 million in ag loans, of which $419.7 million were operating loans and $567.3 million in real estate loans. Ida Grove grew ag loans by 6.4% on the year, with 76.9% of its loans in agriculture.
Dacotah Banks, Inc., of Aberdeen, S.D., had $937.9 million in ag loans, including $362.7 million for operating and $575.2 million for real estate. DBIN grew its ag loans by 2.3% in the previous year. Agriculture accounted for 44.1% of its loans.
Stockman Financial Corp, Miles City, Mont.. , had $783.2 million in ag loans, including $302.1 million in operating and $481.1 million in real estate loans. The company’s ag portfolio grew by 1% on the year, and accounts for 29.7% of its business.
