Ag lenders were already stressed. Then came the coronavirus.

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Across the Midwest, the coronavirus outbreak threatens to pack years’ worth of frustration and hardship into a single growing season.

Farmers across the region are becoming increasingly nervous as the disease expands beyond early hot spots in coastal markets. That anxiety is also being felt by their lenders.

“Just weeks ago, a lot of people were thinking this was a New York problem, that it wouldn’t be much of an issue here,” said Shan Hanes, president and CEO of the $122 million-asset Heartland Tri-State Bank in Elkhart, Kan.

“But reality has set in, and it’s serious,” Hanes added. “It’s sucked the energy out of our community just like it has almost everywhere.”

Concern is building that the economic freeze imposed by the pandemic will inflict harsh tolls on farmers and their rural communities — and lead to elevated loan losses at a number of community banks.

Ag lenders note that they have already weathered a multitude of challenges in recent years.

Robust harvests produced excess supply that drove down crop prices and farm profits, and the U.S.-China trade war further weakened demand for American soybeans and other crops.

Adjusting for inflation, the Agriculture Department projected in February that 2020 net cash farm income would decline by 10.7% from a year earlier, to $13.1 billion. It also forecast that farm debt would rise by $10 billion, to a record $425 billion.

Many farmers have borrowed more to offset lower income to make sure they can afford seed, supplies and equipment.

The pandemic has exposed new vulnerabilities and pressures on crop and livestock prices, and is creating challenges for businesses that sell into the farm sector, industry experts said.

Restrictions on worker density to ward off spread of the virus hinders productivity at meatpacking plants. Depressed oil prices — resulting from the pandemic and an international price war — have also hurt ethanol values.

Social distancing measures have also cut into sales at farm equipment dealers and other businesses that round out the agricultural sector.

“Even if we do get this under control and back on track, the effects will last a while and make things that much more difficult for agriculture,” said Ryan Cox, an ag banking manager at the $526 million-asset CBI Bank & Trust in Muscatine, Iowa.

Prominent ag lenders pulled back before the pandemic amid concerns about borrowers’ waning incomes and rising leverage. Farm bankruptcies rose by more than 20% in 2019 from a year earlier and debt-to-asset ratios reached 15-year highs, according to the Agriculture Department.

Agriculture loans on bank’s balance sheets, including farmland, fell by 2.1% in 2020 from a year earlier, to $187 billion.

“A lot of banks have tightened up,” said Darin Newsom, an agriculture analyst in Omaha, Neb.

Most farmers had already secured as much the credit as they could ahead of the spring planting season, which is underway. If economic pressures fester and farmers run low on cash later this year, Newsom said, more borrowers would struggle to obtain the credit needed for equipment repairs and operational needs. And more would struggle to pay their existing loans.

That scenario would inflict economic pain on rural communities across the Midwest. Many businesses in small towns are already closed or operating with reduced hours.

“I don’t think anyone, really, is going to escape some impact from all this,” Newsom said.

A monthly survey of bank CEOs in 10 agriculture-heavy states, conducted by Creighton University in Omaha, produced a grim March reading of 35.5 — a plunge from 51.6 in February and the biggest monthly drop since the survey launched in January 2006. Readings below 50 indicate contraction.

Creighton economist Ernie Goss said 61% of bankers surveyed expect a recession in their markets.

While national lenders may continue to scale back, banks dependent on the ag sector say they will find ways to help farmers and local businesses.

Bank of Hazleton in North Dakota is extending lines of credit and opening up new lines, said President and CEO Dave Kusler.

About 90% of the $50 million-asset bank’s loans involve agriculture, according to the Federal Deposit Insurance Corp.

Current conditions are much different than during the financial crisis because crop prices, generally, were substantially higher in 2008 than they are now.

The ag sector “was booming” during the last recession, Kusler said. “But this one’s going to hurt. Prices aren’t that good to start with and there’s a lot of uncertainty in the market.”

Banks emphasize that they entered this downturn well capitalized and financially strong. They are, as an industry, positioned to effectively work with the federal government’s emergency response programs to help clients weather the pandemic.

Hanes at Heartland Tri-State said a majority of the bank’s loans involve agriculture. For now, an expansion of the Payroll Protection Program, with potential loan forgiveness for borrowers who retain employees, will play a big role in minimizing unemployment.

The federal aid — and banks’ role in deploying it — is vital, Hanes said.

“This virus has really brought much of our community to a standstill,” he added. “We have to be here to help.”

Jon Prior and Allissa Kline contributed to this article.

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