US Banker  |  November, 2009

By Glen Fest

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Many farmers and ranchers are struggling to repay their bank loans as falling commodities prices have taken big bites out of their income.

In its quarterly survey of agricultural lenders release last week, the Federal Reserve Bank in Kansas City said that with incomes for crop and livestock producers down 10 to 15 percent from a year ago, loan repayment rates in the third quarter fell to their lowest levels in six years. As a result, more and more lenders are heightening collateral requirements and are offering extensions to borrowers, Fed economist Brian Briggeman and assistant economist Maria Akers said in the report, which surveyed 263 bankers in Kansas, Nebraska, Oklahoma, Colorado, Wyoming and areas of Missouri and New Mexico.

Agricultural loans held up better than most loans even during the depths of the financial crisis but have weakened over the last few quarters as demand for farm products slowed. According to the bankers surveyed, many farmers and ranchers are operating at breakeven levels or worse because prices have fallen below production costs.

One area of good news was that farmland values in the region seemed to be stabilizing after a decline earlier this year, with three-fourths of bankers predicting prices for both crop and ranch land will stay at current levels until 2010.

That’s not the case in the upper Midwest. In a separate ag lending survey issued by the Federal Reserve Bank of Chicago, lenders reported a 4 percent erosion in land values from year ago. While the Chicago Fed’s AgLetter did not quantify expected income drops for farmers, more than eight in 10 bankers surveyed said they expect a drop in net farm income over the next three to six months.

“Responding bankers did not see agricultural credit conditions improving during the fall and winter,” according to the report’s author, David Oppedahl, a Fed economist.

With incomes down, bankers in the Chicago region say loan repayments are at their lowest levels since 2006 and expect total loan volume across the ag sector—including livestock, farm machinery, grain storage construction and real estate— to be lower at yearend 2009 than in 2008. Nearly half see a continuing decline in loan repayments, and 37 percent expect more forced sales and liquidations of farms over the next three-to-six months.