Farm Debt is Growing
The Kansas City Fed just released a report indicating that farm debt is accumulating at a faster pace. Farmers with carryover debt increased from 18% of loans to 29% of loans in the first quarter of 2016. Also, 18% of total loans made in the first quarter involved restructuring existing debt to meet short-term liquidity needs.
Loan repayment rates weakened for the 10th consecutive quarter, the longest streak since the mid 2000s. 66% of Nebraska bankers indicated increasing loan demand and all of Nebraska bankers indicated that farm incomes were down. Farmers with increased carryover debt rose to 37% in Nebraska.
As expected, bankers are starting to raise the collateral needed to get operating loans. Also, bankers are reporting a significant increase in obtaining FSA guarantees. These guarantees provide an extra layer of loan protection for the banks, however, these funds appear to be nearing their approved limits.
In the first quarter, 86% of the bankers surveyed reported lower farm income than a year ago. 50% of the bankers reported that household spending has declined up from 25% a year ago.
Cash rents are starting to drop even more. Rangeland cash rents declined 10% from a year earlier the sharpest drop since 2009. Cropland cash rents declined 6% from a year earlier. Although rents declined, the price of farmland remained steady and the bankers expect it to be flat over the next three months.
With the recent uptick in crop prices, the next report may be a little better than the last few. We will keep you updated.
Paul Neiffer, CPA