Mt Pleasant News
http://mt-pleasant-ia.villagesoup.com/p/1599076

Neighbors Growing Together | Dec 11, 2016

Not everything is rosy down on the farm

By Brooks Taylor | Nov 25, 2016

A number of years ago farm commodity prices, especially row crops, were booming.

Gasohol and ethanol plants were dotting the Midwest landscape, increasing the demand for corn and soybeans. That pushed corn prices near double digits per bushel and soybean bushel prices were well into double figures.

It became a domino effect. The higher corn and soybean prices went, the price of land followed closely behind. With strong market prices, farmers wanted to increase production. To increase production, more land was needed.

I remember farmland in Iowa selling for over $10,000 an acre. That immediately sent my mind back to the mid-1980s. I had seen this movie before. During that time, farmers over extended. Coupled with high interest rates, the walls came crashing down leading to a farm bankruptcy crisis.

Although interest rates now are much lower than they were in the 1980s, expansion of farming operations was eerily reminiscent of that decade.

We now have a problem.

Recently, I stumbled across an article in “Wallace’s Farmer” written by two staffers of the Bloomberg Group. The article said that the level of farm debt to income is the highest in three decades and growers are increasingly unable to make loan payments.

The Federal Reserve says growers are borrowing more to pay bills, repayment rates are plunging and the number of bankers requesting additional collateral is the highest in 25 years.

Not only is farm income down 42 percent from a record ion 2013, according to government data, one group says farmland, like commodities, is in for a sharp plunge. Predictions are farmland values will tumble 20 percent by 2018. Farmland prices in Iowa are down five percent from 2015, according to the Federal Reserve Bank of Chicago.

Dan Kowalski, director of research at CoBank, a Colorado agricultural lending cooperative, says in the Wallace’s Farmer article that some farmers simply are not going to survive. “Unquestionably, some farmers are not going to make it,” he begins. “If they made aggressive growth decisions and did it with debt, that won’t work out well. Credit quality is starting to slip on the farm and smaller agricultural businesses. Bankers are asking if they have the cash flow to pay bills.”

The Federal Reserve Bank of Kansas City said recently that rural lenders it surveyed are seeing an erosion of financial health and credit conditions for crop and livestock producers in a seven-state region from Missouri to Colorado. In the third quarter, nearly 30 percent of the banks reported a significant deterioration of working capital for farmers, about twice as many as the same time in 2015, the Kansas City Fed said in a report early this month.

The federal reserve bank said about 60 percent of total farm loans have been used this year to finance operating expenses, such as seed, fertilizer, animal feed and land rent. That’s the most in more than two decades.

Midwest banks expect about 22 percent of farmers to have negative cash flow in 2016 and some lenders have gone as far to say that farm foreclosures will be an increasing challenge.

Farmers National Company, a farm-managing firm, reported that its land-auction business is getting a few calls from banks that are demanding borrowers to sell acres to reduce debt or pay off loans.

Corn prices are down by more than half from their all-time high in 2012, cattle and hog prices have plunged 38 percent from record prices in 2014. That all adds up to a net-farm income of $71.5 billion in 2016, a seven-year low, and almost 50 percent lower than $123.8 billion in 2013.

According to a bank officer, those farmers most effected are the younger ones without a big land base to refinance operating and equipment loans.

However, it’s not all doom and gloom out on the farm. MetLife Agricultural Finance said most producers remain profitable, aided in part by the highest corn yields ever. In addition, an increasing share of the nation’s agricultural output comes from bigger producers with deeper pockets. With growth in food demand, farm values should be rallying again by 2020, according to MetLife.

Comments (0)
If you wish to comment, please login.