Farmers and ranchers are relying upon operating loans to get through a year with a difficult forecast for farm income.
According to the Kansas City Federal Reserve’s Ag Finance Databook for 2016’s first quarter, the number of non-real estate farm loans increased by 4% compared to the same period one year ago.
The size of those operating loans also continued to grow early this year. In the first quarter, loans larger than $100,000 accounted for 77% of the total volume of non-real estate farm loans, up from 72% in 2011 and 67% in 2006,” said the report. “The increasing share of large loans could be due to persistently high input costs or farm expansion, but may also indicate producers have become increasingly dependent on financing amid tighter profit margins in the farm sector.”
The overall volume of non-real estate farm loans was just fewer than $100 billion (in 2015 dollars), which represented a 13% drop from the same quarter in 2015.
It’s a situation that bears watching for producers and their bankers, despite the financial boost from the recent rally in the grain markets.
“In the fourth quarter, delinquency rates on both farm real estate loans and farm non-real estate loans edged up whereas delinquency rates on all loans, agricultural loans included, trended lower,” the report noted, adding: “Despite the recent uptick in delinquencies on farm loans, delinquency rates remained well below the average of the past 15 years. Nevertheless, a persistently weak farm economy may force a greater number of highly leveraged producers into default, putting further pressure on profits for banks with a portfolio concentrated in agriculture.”
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