Creeping concern in farm credit system

Nov 22, 2019  | 2 min  | Ep4514

Creighton’s Rural Mainstreet Index topped growth neutral for the fourth time in five months. ---

The survey’s author says federal crop support payments and somewhat higher grain prices have boosted the outlook.

The House Agriculture Committee convened a hearing to examine another vital aspect of the rural economy – farm credit.

Peter Tubbs reports. Producer contact

Multiple years of losses on the farm have stressed farm balance sheets, but have been slow to injure the farm credit system as a whole. 
Glen Smith, CEO of the Farm Credit Administration, testified before the House Agriculture Committee this week that while the absolute number of farm bankruptcies is still small, there is concern in their growth.
Glen Smith, CEO, Farm Credit Administration: “You’ve heard of foreclosures being up, percentage wise, and percentages, the numbers aren’t alarming, but the percentage increases are. Foreclosure should be a last resort.”
When asked if the current financial crisis on the farm is similar to the situation in the 1980’s, Smith sees parallels to that difficult decade.
Glen Smith, CEO, Farm Credit Administration: “Which part of the 80’s? When we got to the mid-80’s and the late 80’s, we were in a crisis situation. But I made the comment that I think we’re at a level that’s comparable to the early 80’s. Decreasing farm incomes, decreasing margins, eroding current ratios. And at that time in the Midwest, we’d lost 15-20 percent of our land values. Guess what? Today we’ve lost 15-20 percent of our land values in the Midwest. The late 70’s and early 80’s were also typified by trade wars, right? At that time it was the Soviet Union with the grain embargo. So I think we’ve learned from the 80’s.” 
Farmers have taken on an additional $41 billion in farm debt in the last 3 years, matching a record high set in the late 1970’s. Despite a trend of low farm net income, low interest rates have allowed producers to stay current on loans.
The percentage of delinquent agricultural loans rose in the second quarter of 2019 from 1.7 to 1.9 percent, a rate two and a half times higher than their low in 2014. The delinquency rate for farm loans in 1987 was over 8 percent. 
While current conditions pale to those 30 years ago, the still FCA sees a creep of deteriorating financial quality in rural America.
For Market to Market, I’m Peter Tubbs.

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