Farmers Hike Borrowing as Working Capital Erodes

November 25, 2014 06:00 AM
Farmers Hike Borrowing as Working Capital Erodes

Farm borrowing is on the rise amid declines in farm income and an erosion of working capital. More than half of bankers report a mild deterioration in working capital relative to year-ago levels and 10% report a significant deterioration, according to the Federal Reserve Bank of Kansas City’s third quarter credit survey. Only 15% of bankers report an improvement in working capital levels.

In light of lower farm income expectations, bankers anticipate increases in the number of loan renewals and extensions, but it varies widely by segment. More than half of bankers expect loan repayment rates to weaken for corn and soybean producers in coming months due to reduced incomes. On the flip side, loan repayment rates for livestock producers are expected to strengthen, particularly for cow/cow and cattle feedlot operations.

Not surprisingly, the survey found sharp regional differences. In areas heavily dependent on crop production, such as Kansas and Nebraska, more bankers report declines in farm income, a sharp rise in demand for operating loans and lower repayment rates compared with last year. However, bankers in areas with high concentrations of livestock operations, such as Oklahoma, report increased farm income, a modest increase in loan demand and solid loan repayment rates.

In contrast with some other Fed district reports, bankers in the Kansas City Fed District say that collateral requirements eased slightly in the third quarter. Average fixed interest rates on operating, machinery and farm real estate loans held steady. Despite different needs for short-term financing, ag bankers say sufficient funds are available for qualified borrowers.

Farmland Values Edge Up Slightly

Farmland values throughout the district were slightly higher year-over-year for the third quarter, up just 1.2% for non-irrigated land, up 2% for irrigated land, while up 4.7% for ranchland. Looking at non-irrigated values in district states, Nebraska posted the only decline with values off 2.5%. Oklahoma values, however, posted the strongest showing, up 10.6%, the Mountain States (Colorado and parts of New Mexico and Wyoming) up 8%; Kansas up 3.5%; and Missouri, up 0.3%.

On irrigated land, Nebraska values declined 2.6%. Values were up 14.3% in the Mountain States, 8.8% in Kansas; and 5% in Oklahoma. Responses were insufficient from Missouri for an irrigated land figure. On rangeland, all states posted increases: Mountain States, up 11%; Oklahoma, 5.5%; Kansas, 5.4%; Nebraska, 3.7%; and Missouri, 3.6%.

About a third of bankers expect cropland values to decline, while less than 5% anticipate value gains.

Looking ahead, some bankers are concerned that persistent low crop prices may place further stress on profit margins and cash flow for crop producers in 2015.

What do you think will happen to farmland values? Join the discussion and see what others are saying on AgWeb's discussion boards.

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Spell Check

Sidney, NE
11/25/2014 10:17 PM

  A perfect storm is brewing with interest rates anticipated to rise next year. Hopefully, input costs will fall with commodity prices. This downturn will trickle through to those businesses dependent upon agriculture. Livestock prices will fall as herds are again rebuilt. Give that just a couple of more years.

Greensburg, IN
11/25/2014 05:56 PM

  It appears to be many factors. High cash rents with little chance of reduced rents in the upcoming year. High land prices. But biggest problem is cash prices received with very little forward sold when prices allowed for some profit were available earlier. Farmer now forced to sell at prices that possibly below cost of production, especially if you didn't get the big yields. Farmer forgot that mother nature works both ways and that corn/beans are still a commodity. Produce too many widget and price will fall. Produce too little and price will rise. It looks like we will find the equilibrium price in the next few years at least on corn. The day of $6 to $8 corn is not likely to return anytime soon. Back to the basics....know your cost, and lock in profit when it presents itself and cover with highest available crop insurance offered.

Merrill, WI
11/25/2014 04:28 PM

  It's not surprising that crop farmers are having trouble. When you drive through the country and see oceans of corn is one thing, but to still see so much corn still standing long after the normal harvest is another.


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