Lenders assess tough harvest, trade impacts as ag stress rises, land values hold
WASHINGTON, D.C. — About 7% of Farm Credit System loans are "stressed," up from about 4% five years ago, but far less than about 22.2% in the mid-1980s, say top executives with some of the farm credit network locations.
The stressed term doesn't mean overdue but is based on a formula that includes numerous factors such as income.
In a press briefing on Tuesday, Oct. 22, from Washington, D.C., attended by phone from ag reporters around the country, chief executive officers of three Farm Credit entities — Jeff Swanhorst, of AgriBank, St. Paul, Minn., Byron Enix, American AgCredit of Santa Rosa, Calif., and Vance Dalton, of Carolina Farm Credit at Statesville, N.C. — provided updates on the farm financial picture.
Overall, the CEOs reported farm net cash income is expected to increase to above the 10-year average in 2019, at 112.6 billion — including $19.5 billion (17.3%) from government payments. Government payments are playing a bigger part — expected up from $13.7 billion in 2018, $11.5 billion in 2017, and 13 billion in 2016. Farm income topped out at $136.1 billion in 2013 and declined to $95.6 billion in 2016 and have risen annually since then.
The farm debt-to-asset ratio, a measure of overall farm financial health (lower is better), has inched to just less than 14%. To compare, the debt-to-asset ratio was nearly 15% in 2002 and was at or less than 12% from 2005 to 2007, and again from 2011 to 2014.
Nationally, the value of U.S. cropland has remained stable to slightly increasing in 2019.
Cropland values continue strong, including the northwest Corn Belt states. State per-acre increases from 2013 to 2019 and percentages include North Dakota, up $170 an acre, or 10%; South Dakota, up $290 per acre, up 10%; Minnesota, up $420, up 10%; Montana, up $150, or 17%. Meanwhile, Nebraska land values declined $470 per acre, or 10%, and Iowa went down $740 per acre or 9% down.
Farm Credit has increased loans to $276.2 billion as of June 30, 2019, up 1% from the same point in 2018, but up 17% from the level in 2015. The system's non-performing loans have been inching upward, but remain less than 1%, which compares to 22.2% in 1985.
Still, about 7% today are in a "stressed" category today, compared to 4.2% in 2014.
AgriBank is one of the largest banks within the national Farm Credit System, with more than $109.8 billion in assets, a figure that has grown from about $90 billion in 2015.
AgriBank is primarily owned by affiliate Farm Credit Associations. It covers a 15-state area from Wyoming to Ohio and Minnesota to Arkansas. It includes Farm Credit Services of America, FCS of North Dakota, at Minot; AgCountry FCS, Fargo; and Compeer Financial, Mankato, Minn. About half of the loans are for crops, followed by dairy, 7%; food processing, 7%; cow-calf, 5%, hogs, 4%; feedlots, 4%; poultry, 3%; grain elevators, 3%, and ethanol, 1%. In that area, annual total farm asset value averages increased 2.9% from 2008 to 2018, with total farm debt increasing 3.1% during the same period and total farm equity up 2.8%.
With "assets based on market values," the debt-to-asset ratios in the AgriBank area are forecast to increase to 13.5% compared to 13.3% in 2018 and from 11.3% in 2012. Farmers in the AgriBank states have seen a decline in working capital — the amount considered a cushion for adversity, Swanhorst said.
Nationally, agriculture continues to be in an "efficiency cycle" in production since 2013, with the 2019 crop situation extremely variable due to weather — including this year's late planting, and early winter. Swanhorst said it is too soon to assess the impact of being three weeks behind and said more will be known late in December.
Crop insurance will continue to be a key counterpoint to weather changes, but tools like prevented planting insurance, are a "safety net" that "doesn't make the farmer whole by any means," he said.
The same can be said for the federal Market Facilitation Program, or MFP, designed to counter the trade tariff issues with China, North American and the European Union. The program is "stabilizing but not a long-term solution," Swanhorst said. The CEOs noted that the future of those payments is uncertain, and that they don't have specific recommendations about future MFP formula changes, even though some specialty crops, including canola have felt short-changed in earlier formulas.
He said interest rates remain low, which is the key to preventing land value declines. He said a 3- to 4-percentage point rise would "take a chunk" off of land values.
Another primary issue in land values is farm income, and that the current "drown-draft of income off the farms over five years, all of the factors that affect income for farmers, are drivers" and could lead to a correction. One bright spot is that many farmers have relatively low debt and are "better prepared" than they have been for other tough times.